JPMorgan Chase may sue the Consumer Financial Protection Bureau if the agency issues an enforcement action against the bank over transfers of funds through peer-to-peer payments platform Zelle.

In a quarterly filing Friday, JPMorgan said it is “responding to inquiries” from the CFPB on the matter. The agency “has informed” JPMorgan “that it is authorized to pursue a resolution of the inquiries or file an enforcement action,” the bank said.

“The Firm is evaluating next steps, including litigation,” JPMorgan said Friday.

Banks’ responses and responsibilities when customers report being scammed or defrauded have long been topics of discussion among regulators and lawmakers.

Three Democratic lawmakers last week introduced companion bills in the Senate and House aiming to expand the circumstances under which consumers are protected through the Electronic Fund Transfer Act.

Sens. Richard Blumenthal, D-CT, and Elizabeth Warren, D-MA, pushed a measure Thursday that would require the harmed customer’s bank, the institution that received transferred funds, and other entities that “materially help facilitate the payments” to all share liability when consumers are duped into initiating a transfer to a bad actor.

The bill is also meant to bolster consumer protection in cases of wire transfer and payments authorized over the phone, and to ensure that banks’ error resolution processes don’t stop when an account is frozen or closed.

“Zelle and the banks that own it have failed to implement adequate safeguards and reimbursement policies to make consumers whole when they fall victim to scams and fraud,” Blumenthal said in a statement Friday. “Our measure takes bold action where Zelle’s efforts at self-regulation have fallen short, ensuring that instant payments do not automatically result in instant losses for consumers.”

JPMorgan is one of seven banks with an ownership stake in Zelle, alongside Bank of America, Wells Fargo, PNC, Truist, U.S. Bank and Capital One.

Representatives from JPMorgan, Bank of America and Wells testified last month in front of a Senate subcommittee — which Blumenthal leads — airing their concerns about expanding banks’ liability under the EFTA.

Much of that discussion centered around authorization. Regulation E of the EFTA requires banks to reimburse customers for fraudulent transactions or those not authorized by the account owner. But reimbursement for authorized transfers is generally left up to banks’ discretion. Blumenthal’s measure chips away at the question of authorization by protecting phone-initiated authorized transfers.

At last month’s hearing, Melissa Feldsher, JPMorgan’s head of payments and lending innovation and loyalty, said working with law enforcement to head off scams before consumers send money is key.

“The best way to protect customers from fraud and scams is to prevent criminals from carrying out their schemes in the first place,” Feldsher said.

In introducing a companion bill to Blumenthal’s, Rep. Maxine Waters, D-CA, said “it is absolutely critical that we move quickly to modernize our consumer protection laws to reflect the realities of today's payment systems.”

JPMorgan’s filing Friday, meanwhile, ramps up the bank’s language surrounding Zelle-related action. The bank’s previous quarterly filing, in May, indicated JPMorgan was “responding to inquiries from civil government authorities” — not naming the CFPB specifically — “regarding the handling of disputes related to transfers of funds through the Zelle Network.”

“The Firm is cooperating with these inquiries and responding to requests for information,” the bank added in the filing.

JPMorgan appears to be alone, so far, in mentioning potential legal action. Wells Fargo, like JPMorgan, flagged government authorities’ “inquiries or investigations” regarding Zelle customer disputes in its May quarterly filing. But Wells kept that language intact for its August filing.

In another change, JPMorgan estimated its top figure for “reasonably possible losses” from legal proceedings at roughly $1.7 billion above its reserves, in its Friday filing. That compares to a ceiling of $1.4 billion in the May filing. 

“The CFPB is fully aware we already go above and beyond what the law requires, reimbursing for all unauthorized transactions and even for certain types of scams, so they should expect to be challenged to ensure their actions stay within the bounds of the law,” a JPMorgan spokesperson told Reuters and American Banker on Friday. “If necessary, we will not hesitate to seek assistance from courts to uphold the integrity of how these services are provided.”

The CFPB declined to comment.

Warren’s office issued a report in 2022 indicating that the banks that own Zelle reimbursed 47% of the amount customers reported in fraud through the platform over the previous 18 months.

Blumenthal on Friday cited a Senate committee report indicating that JPMorgan, Wells and Bank of America reimbursed 38% of consumers who reported fraud in 2023.

By Dan Ennis on Aug 5, 2024
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