Wells Fargo, JPMorgan Chase and Bank of America are being sued by the embattled Consumer Financial Protection Bureau over alleged unchecked fraud on the Zelle payment app — setting up a legal showdown that the incoming Trump administration could quash as soon as next month.

The three financial institutions, which co-own the app along with four other large banks, were accused in a lawsuit filed Friday of rushing to launch the service in 2017 without putting in place proper consumer safeguards in order to compete with popular payment apps such as Venmo. The result, according to the lawsuit, were fraud-related losses of more than $870 million over the last seven years.

"Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves," said CFPB Director Rohit Chopra.

The 91-page federal lawsuit claimed that hundreds of thousands of consumers at the three banks made complaints about being defrauded but were "were largely denied relief, and some were even told to try getting their money back by contacting the person who had defrauded them." The CFPB said the three banks accounted for 73% of Zelle activity last year.

The lawsuit was immediately attacked by Early Warning Services, which operates the app on behalf of the banks, as "legally and factually flawed" and claimed the lawsuit could be counterproductive by "incentivizing" criminals to make bogus fraud claims that institutions would have to pay — raising the app's costs and driving away credit unions and community and minority-owned banks offering Zelle. Some 2,200 financial institutions use the service.

"Zelle is relied upon by 143 million enrolled American consumers and small businesses, and we are fully prepared to defend this meritless lawsuit to ensure their service does not suffer," said Jane Khodos, a spokesperson for Early Warning, which was also named as a defendant.

Bank of America, in its own statement, said that "more than 99.95 percent of transactions across the Zelle network go through without incident. When a client has an issue, we work directly with them."

JPMorgan Chase also denied the allegations and alluded to political overtones raised by Early Warning, saying the CFPB's action was a "last ditch effort in pursuit of their political agenda." Wells Fargo did not return messages for comment.

The CFPB, established in 2011 in the aftermath of the financial crisis, has long been criticized by Republicans as a "runaway" agency whose actions are heavy handed and stifle economic growth.

The first Trump administration sought to rein in the bureau and redrafted proposed rules aimed at tightening regulations on payday lenders. Consumer advocates considered the final regulations watered down. The new Trump administration could terminate the Zelle lawsuit when it takes power next month.

Some critics want to abolish the agency altogether. Billionaire Elon Musk, who is leading an effort to streamline the federal government through the so-called Department of Government Efficiency, or DOGE, criticized the agency in a November post on X that said, " Delete CFPB. There are too many duplicative regulatory agencies."

Earlier this year, the Supreme Court turned down an effort by a payday lending trade group to declare the bureau's structure unconstitutional because it is funded by bank fees instead of congressional appropriations.

The bureau, which boasts it has gotten consumers more than $21 billion in relief, has stepped up its enforcement actions recently ahead of the change in administrations.

On Monday, it filed separate lawsuits against Walmart and Rocket Mortgage over alleged financial wrongdoing. And earlier this month issued landmark rules that could lower the costs of bank overdrafts to as little as $5.

Separately, the Federal Trade Commission, led by outgoing chair Lina Khan, sued Los Angeles cash app Dave Inc. last month, accusing it of misleading its financially vulnerable customers about fees it charges and the amount of money it gives out. The company denies the allegations.

The CFPB in its lawsuit claimed that without adequate safeguards Zelle allows fraudsters to create multiple email addresses and mobile phone numbers in signing up for the service that it can link to the same or different bank accounts, leaving consumers unaware of who they are sending their money to.

It claimed the banks allowed repeat offenders to hop between banks, with the banks not sharing information about fraudsters and acting too slowly to restrict or track criminals. It also claimed that it did not act on the hundreds of thousands of complaints they received to prevent further fraud.

In response, Early Warning claimed it has "highly effective multi-layered fraund and scam prevention measures" that in 2023 resulted in reports of frauds and scams decreasing by nearly 50% despite a 27% increase in transaction volume.

The company said it had made "every effort to engage and cooperate" with the bureau before the lawsuit was filed, which it said is part of the agency's "pattern and practice of regulatory overreach."

The bureau's lawsuit was applauded by the National Consumer Law Center, which said, "The CFPB is standing up for people who weren't able to get the big banks to take their claims of fraud seriously and return their hard-earned money. The CFPB helps ordinary people who've been hurt by big banks."

Sen. Elizabeth Warren, who spearheaded the creation of the agency, came to its defense last week and called on Trump to work with the agency to help American families by temporarily capping credit card interest rates at 10% — a pledge he made on the campaign trail.

"That would be a real boost for millions of families across this country," the Massachusetts Democrat said. "If he's true to his word here, and I think we ought to take them at his word, then the CFPB can help him do that."

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