HAMPTON ROADS, Va.–There is a “groundswell of litigation” emerging around the lack of fraud warnings or reimbursements for customers/members who are defrauded on Zelle.
The law firm Kaufman & Canoles, writing on JDSupra.com, highlighted an issue CUToday.info has reported on several times, noted that so far banks/CUs using the person-to-person payment solution are involved in at least three class action lawsuits related to Zelle fraud losses.
Those lawsuits include:
- On April 20, 2022, Bank of America was sued in Orange County, Calif. in a putative nationwide class action under the CA UCL. That case was removed to the CDCA and is pending. Tristan v. BOA, according to Kaufman & Canoles.
- Also in April 2022, Navy Federal Credit Union was sued in Union County, N.J. under the NJ CFA. That case was also removed and is pending in the NJ federal court. Wilkins v. Navy FCU (Case 2:22-cv-02916 filed May 18, 2022). These claims are under the New Jersey CFA for breach of contract, the firm reported.
- In May 2022, Capital One was sued in Florida state court on similar claim theories for fraudster activities utilizing the Zelle network. That case was removed to federal court in Miami.
‘Similar Lawsuits Likely to Follow’
“None of these cases have proceeded past the initial stages although motions to dismiss have been filed. Similar lawsuits are likely to follow,” Kaufman & Canoles said in their online posting. “The EFTA claim for these types of transactions is being bolstered by determinations by the federal banking regulators – the CFPB and the FDIC – that both banks and the money payment platform providers – like Zelle, Cash App, or Venmo – have duties under EFTA to investigate electronic fund disputes and to limit consumer liability even when the consumer was negligent in allowing the transfer.
“The regulators also maintain that it is improper for a financial institution to try to limit its EFTA or Regulation E duties to consumers via language in account agreements and related disclosures,” the post continued.
Kaufman & Coles said financial institutions should “expect to see more activity” by regulators examining reported fraud in the money transfer space.
Reg E Training Stressed
“Training staff on Regulation E’s requirements and assisting consumers alleging unauthorized transactions will be very important,” the firm said. “There are approximately 1,500 member banks and credit unions who participate in the Zelle service. Those members engage in their own significant marketing efforts to encourage their accountholders to sign up for the Zelle service by marketing Zelle as a fast, safe, and secure way for consumers to send money.
“Bank of America prominently touts Zelle to its accountholders as a secure, free, and convenient way to make money transfers,” Kaufman & Canoles stated. “However, it misrepresents and omits a key fact about the service that is unknown to accountholders: that there is virtually no recourse for consumers to recoup losses due to fraud.
“The unique, misrepresented, and undisclosed architecture of the Zelle payment system means – again, unlike other payment options commonly used by American consumers – that virtually any money transferred for any reason via Zelle is gone forever, without recourse, reimbursement, or protection.”
BOA does not and will not reimburse its accountholders for losses via Zelle due to fraud, even where those losses are timely reported by accountholders, the law firm said.
One CU Pays Reimbursement
As CUToday.info reported here, Blue FCU in Denver recently chose to reimburse a member defrauded in a Zelle transaction.
The Zelle network is operated by Early Warning Services, a company created and owned by seven banks, including Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo.
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