Regulators probing big banks’ handling of Zelle scams

The Consumer Financial Protection Bureau probe focuses on JPMorgan Chase, Bank of America and Wells Fargo, among other large banks, according to people familiar with the matter.

It is broad in nature and meant to examine how the banks respond when customers dispute transactions made through Zelle, the people said. JPMorgan disclosed in a filing Friday that it was responding to CFPB inquiries regarding Zelle; other large banks are expected to disclose contact with the CFPB soon.

Zelle, created in 2017 to compete with popular money-transfer services such as Venmo and Cash App, is owned by a consortium of seven of the largest U.S. banks including JPMorgan, Wells Fargo and Bank of America. The network now handles a larger dollar value of transactions than Venmo. But with the rapid growth came an increase in complaints that the banks weren’t doing enough to help retrieve money their customers were duped into sending.

Banks are required to refund customers for transactions they didn’t authorize, but there isn’t legal protection for customers who send the money themselves. Reversing erroneous transfers is usually impossible.

Part of the CFPB’s probe focuses on whether banks are proactive enough in shutting down accounts controlled by scammers, the people familiar with the matter said. The CFPB is also examining the degree to which banks vet the identity and background of deposit-account customers who end up being bad actors.

Banks have said the majority of payments made through Zelle are legitimate and don’t believe they could reasonably prevent all misconduct that happens through the service. Steps they have taken in recent years to protect customers include repeated warnings about sending money to strangers.

Since last summer, Zelle has required its member banks to reimburse customers for certain disputed transactions even when the victim authorized the payment, such as when scammers impersonate a government official or a customer’s bank.

JPMorgan in its Friday filing said the CFPB is preparing to either reach a settlement with the bank over its inquiries or bring legal action, and that the bank is prepared to go to court over the matter.

A JPMorgan spokesman said that the CFPB “is fully aware we already go above and beyond what the law requires" and that the regulator “should expect to be challenged to ensure their actions stay within the bounds of the law."

Wells Fargo has previously disclosed inquiries regarding Zelle from “government authorities."

Early Warning, the network operator of Zelle, said in a statement that 99.95% of transactions are completed without reports of fraud or scams, thanks to the countermeasures it has in place.

Separately, some lawmakers have questioned whether Zelle’s owners are fulfilling their legal obligation to reimburse unauthorized fraudulent payments, such as when a customer’s phone is stolen and a payment is made without the customer’s involvement.

Sen. Richard Blumenthal (D., Conn.) said in a report last month that JPMorgan, Wells Fargo and Bank of America reimbursed about 38% of customers reporting unauthorized transactions in 2023, down from 62% in 2019. Blumenthal, in a letter to CFPB Director Rohit Chopra on Monday, urged the bureau to investigate and suggested the decline was because banks aren’t following the law.

Banks have said many of these complaints turn out to involve authorized payments and aren’t legally required to be reimbursed.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com, Alexander Saeedy at alexander.saeedy@wsj.com and Andrew Ackerman at andrew.ackerman@wsj.com