Lynn Johannson, Advisor, Sustainability and ESG
January 4th, 2024
Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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JPMorgan vs. Regulators Over Zelle Fraud Scams
Payments | Oct 4, 2024
Image: Freepik
JPMorgan Chase Considering Lawsuit Against Consumer Financial Protection Bureau (CFPB) Over Zelle Fraud Claims
JPMorgan Chase is thinking of suing Consumer Financial Protection Bureau (CFPB) after the CFPB claimed that the bank failed to remove fraudulent accounts from the platform and didn't reimburse scam victims on the peer-to-peer payment network Zelle, which is owned by a consortium of 7 major US banks and setup to compete with fintech giants, Paypal and Venmo in 2017. Previously, the U.S. Senate scrutinized JPMorgan for it's handling of these same Zelle payments network fraud claims.
See: CFPB Eyes Digital Payment Regulation for Big Tech
JPMorgan strongly disagrees with this claim and hinted in a recent financial filing that they make consider taking the CFPB to court over the issue. This is certainly an interesting twist where a major bank may sue their regulator. Lots of tension as incumbent banks, fintechs, and regulators balance client protection and fraud concerns in a quickly evolving market.
What's the Issue With Zelle and Fraud?
- A U.S. Senate report claims that Zelle handled transactions totaling more than $800 billion in the previous year of which $166 million was challenged as fraudulent taking place at one of 3 large banks including Wells Fargo, Bank of America, and JPMorgan Chase.
- Only around 38% of these claims received reimbursement.
- According to JPMorgan, it reimburses 100% of transactions that are considered "unauthorized," but the way such transactions are classified is the issue. Refunds are unlikely if a consumer voluntarily pays money to someone, even if they were defrauded because the customer 'authorized' it.
- The bank has now included a warning message to help customers stay safe and understand that refunds may not be available for certain transactions.
- According to Zelle, 99.9% of its transactions are trouble-free and as a precaution now warns consumers of scammers.
Larger Debate
The CFPB believes that banks should do more to identify and prevent fraudulent/fake accounts, and customers should be compensated when they are scammed.
See: JPMorgan’s New Programmable Payments in Blockchain
Part of the push is from Biden's administration for a wider regulatory effort to protect consumers and lower costs associated with digital payments, overdrafts, and credit card fees. JPMorgan's potential lawsuit could set a precedent for how banks interact with regulators and encourage other financial institutions to challenge regulations more aggressively.
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