of Consumer Financial Protection Bureau announced today that it has filed a lawsuit. early warning service, bank of america, JP Morgan and wells fargo Alleged failure to implement anti-fraud measures in peer-to-peer payment network Zell.
Financial institution customers named by today’s lawsuit According to the CFPB, the company has accumulated more than $870 million in losses due to its alleged failure to protect against fraud.
But Zelle’s parent company, Early Warning Services, claims the CFPB’s recent lawsuit is evidence of the agency’s “pattern and practices of regulatory overreach.” jane KodosVice President of Early Warning Public Relations said: Bank automation news today. “Through this litigation, the CFPB will simultaneously create and enforce entirely new legal requirements that go far beyond what Congress has authorized the CFPB to do.”
Excessive regulation?
The CFPB plans to expand its oversight to include nonbank entities in 2024. Ryan BlumbergBanking and Financial Services Lawyer at an International Law Firm clark hill said Prohibited.
“for example, CFPB finalizes rules covering major nonbank providers of digital wallets and payment apps We filed a federal oversight complaint targeting large corporations,” Blumberg said. “Additionally, the Department is seeking to strengthen transparency and compliance by establishing a public registry requiring nonbank entities to disclose enforcement actions under the Consumer Protection Act.”
The CFPB has also filed lawsuits against nonbank companies for alleged violations of traditional banking regulations, signaling an expansion in the scope of its regulation of nonbank financial services, Blumberg said, adding that today’s lawsuit He added that this is another example of that trend.
In the wake of the CFPB’s lawsuit, banks will deploy delay tactics “in anticipation of a potentially more favorable regulatory environment under the incoming administration before engaging in settlement negotiations,” he said.
Zell’s defense
The CFPB’s attacks on Zelle are “legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle,” Kodos said. Prohibited.
Kodos said Zelle provided regulators with information on improving its anti-fraud processes. The agency does not find that Zelle’s consumer reimbursement policy exceeds regulatory requirements, she said.
Kodos said Zelle reimburses customers for any fraudulent activity under the Electronic Funds Transfer Act and Reg E law.
The payment provider said it requires all participating financial institutions to use authentication and enrollment controls such as:
- Encrypted identity verification data.
- Real-time monitoring of registered tokens. and
- Data-driven technology to identify potential bad actors in real time.
According to Zelle data, in 2023, 99.95% of payments were transferred without any fraud or fraud reports.
Payment networks are also reporting a nearly 50% reduction in fraud and fraud, Kodos said. This came despite a 27% increase in transaction volumes in 2023, Zelle said.
lawsuit
CFPB The lawsuit alleges that in their rush to provide payment rails to their customers, major banks failed to protect consumers with Zelle, resulting in “hundreds of millions of dollars in consumer losses,” according to a CFPB release today. There is.
“The country’s largest banks felt threatened by competing payment apps and rushed to implement Zelle,” said CFPB Director. Rohit Chopra said in a release. “By not taking proper safeguards, Zelle became a gold mine for scammers, leaving victims to fend for themselves.”
According to the release, in the lawsuit, the CFPB alleges that the bank:
- Ignoring red flags, including consumer fraud complaints.
- Allow criminals to strike again.
- Failure to properly investigate complaints. and
- Identity verification methods have not been improved.
Editor’s note: This is a developing story
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