The US Consumer Financial Protection Bureau is suing Zelle and four of its partner banks

On Friday, the Consumer Financial Protection Bureau (CFPB) sued four financial companies involved in Zelle. The CFPB case (through CNBC) accuses Zelle’s operator (Early Warning Services) and three of the service’s partner banks – JPMorgan Chase, Bank Of America and Wells Fargo – of failing to protect users from widespread fraud in the peer-to-peer payment system.

The CFPB says customers of those three banks lost more than $870 million during Zelle’s seven years as a paid service. The lawsuit alleges that hundreds of thousands of customers who have filed fraud complaints have been denied meaningful help, with some told to “contact the scammers directly to get their money back.” (Pro tip: Don’t do this.)

“The nation’s biggest banks felt threatened by competing payment apps, so they rushed to shut down Zelle,” CFPB Director Rohit Chopra wrote in a statement. “By failing to implement adequate safeguards, Zelle has become a gold mine for scammers, while often leaving victims to fend for themselves.”

The CFPB says one of the system’s loopholes is that its “tokens” (associated U.S. phone numbers or email addresses) can be used and reassigned between different banks. The agency says fraudsters can take advantage of this by linking the victim’s number or email to the perpetrator’s escrow account, causing payments intended for the consumer to go into the fraudster’s account.

The lawsuit accuses Zelle and the banks of allowing repeat offenders to jump between financial institutions with impunity. “Banks have not shared information about known fraudulent transactions with other banks in the network,” the CFPB wrote. “As a result, bad actors could conduct multiple fraud schemes at multiple institutions before being detected, if at all.”

The CFPB also alleged that the defendant banks failed to heed the signals to prevent further fraud, report incidents consistently or in a timely manner, properly investigate customer complaints, or take appropriate action.

On Friday, Zelle framed the government’s lawsuit as a political coup that would help criminals and force them to pay fees. “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,” Zelle spokeswoman Jane Hodos wrote in statement. “Zelle leads the fight against fraud and has industry-leading refund policies that go above and beyond the law. The CFPB’s misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses, and make it harder for thousands of local banks and credit unions to compete.

In September, JPMorgan Chase wrote in a quarterly filing (via CNBC) that it would consider a countersuit if the CFPB takes action against the bank for its role in Zelle.

last month, The Washington Post reported that President-elect Donald Trump and congressional Republicans plan to limit the CFPB’s funding and powers, aligning itself with the agenda of major financial institutions. Elon Musk and Vivek Ramaswamy, his “government efficiency” advisers, have said they want to scrap the agency, which was created in 2011. in response to the 2007-08 financial crisis. and the resulting recession.

Killing the agency would require a vote in Congress, which likely won’t pass given the thin Republican majority. But they could do what Trump did in his first term: appoint a new director to effectively slow or halt regulatory action knee cup the agency while they lead.