A federal regulator on Friday sued JPMorgan Chase, Wells Fargo and Bank of America, alleging the banks failed to protect hundreds of thousands of consumers from rampant fraud on the popular Zelle payment network in violation of consumer financial laws.

In the federal civil lawsuit, the Consumer Financial Protection Bureau alleges that the banks rushed to launch the peer-to-peer payment platform without effective fraud protections, and then gave them credit after consumers complained about fraud on the service had largely refused relief.

“Soon after the launch of Zelle, significant issues, including fraud, among consumers using Zelle quickly became apparent. But for years, defendants have failed to take meaningful action to address these obvious deficiencies,” the complaint states.

The CFPB alleges that the banks violated federal consumer finance laws governing power transfers, which require banks to conduct “appropriate investigations” when consumers report transaction errors, and the agency’s prohibition of unfair acts or practices by failing to take steps to prevent them and combat fraud have undertaken Zelle. The agency is seeking an unspecified amount of money to cover refunds, damages and penalties.

“Customers of the three banks named in today’s lawsuit lost more than $870 million over the network’s seven-year existence due to these outages,” the CFPB said.

Also named as a defendant in the lawsuit is Early Warning Services, a Scottsdale, Arizona-based fintech company that operates Zelle. EWS is owned by seven US banks, including JPMorgan, Wells Fargo and Bank of America. These three banks are the largest financial institutions on the Zelle network and accounted for 73% of activity on Zelle last year.

Bank of America said it strongly disagrees with the lawsuit because it believes it would impose “tremendous new costs” on banks and credit unions that offer free Zelle service to their customers. It is said that more than 99.95% of transactions across the Zelle network occur without incident.

“If a customer has an issue, we work with them directly,” the Charlotte, North Carolina-based bank said.

In a statement, New York-based JPMorgan said the CPFB was “exceeding its authority by holding banks accountable for criminals.”

San Francisco-based Wells Fargo declined to comment on the lawsuit.

Early Warning called the lawsuit “legally and factually flawed.”

“Zelle is a leader in the fight against fraud and fraud and has industry-leading reimbursement policies that go beyond the law,” the company said.

Since its launch in 2017, Zelle has become one of the most widely used peer-to-peer payment networks in the United States, with more than 143 million users. According to the CFPB, Zelle users transferred $481 billion in more than 1.7 billion transactions in the first half of 2024.