Welcome to the January 2025 issue of NEACH’s Innovating Payments Executive Summary. In this issue, the CFPB sued the operator of Zelle and three of the nation’s largest banks, alleging they failed to protect consumers from widespread fraud. The consumer agency also filed lawsuits against Walmart and Branch regarding accounts for gig economy drivers.
Additionally, the Bank Policy Institute, the American Bankers Association, the U.S. Chamber of Commerce, the Ohio Bankers League, and the Ohio Chamber of Commerce announced litigation against the Federal Reserve that challenges aspects of the stress testing framework, according to an American Bankers Association news release.
The Federal Trade Commission (FTC) also referred its federal court case against online cash advance firm Dave Inc. to the U.S. Department of Justice (DOJ). The DOJ filed an amended complaint, naming Dave CEO Jason Wilk as a defendant and seeking civil penalties.
Finally, on New Year’s Eve 2024, X CEO Linda Yaccarino announced that the company would launch a payments system in 2025. However, the company must first overcome regulatory hurdles and gain consumer support.
Read on to learn more.
Consumer Financial Protection Bureau (CFPB)
CFPB Sues JPMorgan Chase, Bank of America, and Wells Fargo for Allowing Fraud to Fester on Zelle
The CFPB sued Zelle's operator and three of the nation’s largest banks for failing to protect consumers from widespread fraud, according to a year-end news release. The release contends that Early Warning Services, which operates Zelle, along with three of its owner banks—Bank of America, JPMorgan Chase, and Wells Fargo—rushed the network to market to compete against growing payments apps such as Venmo and CashApp without implementing effective consumer safeguards.
Due to these failures, customers of the three banks in the lawsuit allegedly lost more than $870 million over the network’s seven-year existence.
Specifically, the CFPB alleges that Bank of America, JPMorgan Chase, Wells Fargo, and Early Warning Services violated federal law through critical failures, including:
- Leaving the door open to scammers: Zelle’s limited identity verification methods have allowed bad actors to create accounts and target Zelle users quickly.
- Allowing repeat offenders to hop between banks: Early Warning Services and the defendant banks were allegedly too slow to restrict and track criminals as they exploited multiple accounts across the network.
- Ignoring red flags that could prevent fraud: The defendant banks have also allegedly violated the Zelle Network’s rules by not reporting fraud incidents consistently or on time.
- Abandoning consumers after fraud occurred: According to the CFPB, the defendant banks failed to properly investigate Zelle customer complaints and take appropriate action for certain types of fraud and errors despite their obligations under the Electronic Fund Transfer Act and Regulation E.
Zelle® Responds to the CFPB’s Lawsuit
In response to the CFPB’s claims, Zelle released this statement, which was attributed to Zelle spokesperson Jane Khodos:
The CFPB’s attacks on Zelle are legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle. Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law. The CFPB’s misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of community banks and credit unions to compete. 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.
For a summary of key points, click here.
CFPB Sues Walmart and Branch Over Accounts for Gig Economy Drivers
“The CFPB sued Branch and Walmart Monday, alleging that the companies illegally opened accounts for gig economy delivery drivers without their consent, required drivers to receive their pay through those accounts, collected junk fees from the drivers, and did not deliver the “instant access” to pay that they had promised,” reported a Dec. 23 PYMNTS.com article.
In an emailed statement sent to PYMNTS.com, Walmart said it looks forward to defending itself in court:
The CFPB’s rushed lawsuit is riddled with factual errors and contains exaggerations and blatant misstatements of settled principles of law,” the statement said. “The CFPB never allowed Walmart a fair opportunity to present its case during their rushed investigation. We look forward to vigorously defending the Company before a court that, unlike the CFPB, honors the due process of law.
Three people familiar with the CFPB’s thinking told Reuters, “The U.S. consumer finance watchdog is moving ahead with rulemaking in the final weeks of Joe Biden's Democratic administration in a bid to advance consumer protections before President-elect Trump overhauls the agency.”
The Federal Trade Commission (FTC)
FTC Refers Case Against Online Cash Advance Firm Dave Inc. to Department of Justice
In other news, the FTC has referred its federal court case against online cash advance firm Dave Inc. to the U.S. Department of Justice (DOJ), which has filed an amended complaint naming Dave CEO Jason Wilk as a defendant and seeking civil penalties, according to a Federal Trade Commission (FTC) news release.
“Dave has targeted consumers facing financial challenges with false promises of quick cash while pocketing surprise fees, including by paying itself a so-called ‘tip,’” Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, said in the release. “Today the DOJ and FTC have shown their commitment to work together to protect consumers from these unlawful practices.”
The amended complaint names Wilk, co-founder and board chair, as a co-defendant and accuses him and Dave of falsely marketing their app as providing up to $500 in cash advances without hidden fees. The complaint alleges that the company rarely offers the advertised amount, often provides no cash advance, and charges undisclosed "express fees."
Additionally, the complaint claims Dave and Wilk have imposed hundreds of millions in undisclosed “tips,” with consumers often unaware of these charges or how to avoid them. Despite promises to donate meals to needy children based on tip payments, Dave reportedly donates only 10 cents per percentage and keeps the rest of the “tip” amount. Dave’s donation does not pay for the food required to provide a meal.
The amended complaint charges Dave and Wilk with violating the FTC Act and the Restore Online Shoppers’ Confidence Act and seeks refunds for affected consumers, civil penalties against the defendants, and a court order to halt the company's illegal practices.
Miscellaneous
Big Banks Sue U.S. Federal Reserve over Annual “Stress Tests”
The Bank Policy Institute, the American Bankers Association, the U.S. Chamber of Commerce, the Ohio Bankers League, and the Ohio Chamber of Commerce announced on Dec. 24, 2024, that they are filing litigation against the Federal Reserve, challenging the aspects of the stress testing framework, according to an American Bankers Association news release, which states:
While stress testing is an important risk management tool for banks and supervisors that helps ensure that banks have sufficient capital to withstand severe economic shock, the lawsuit seeks to resolve longstanding legal violations by subjecting the stress test process to public input as federal law requires. Stress testing has direct implications on banks' ability to support American households and businesses and harms the U.S. economy by slowing job growth, hindering capital markets intermediation and raising the cost of credit.
Without the legally required transparency that applies to other federal regulations, the stress tests amount to an illegal intervention into the cost of capital, with detrimental results for the economy. Although this legal action targets the stress test, its goal is not to eliminate it - only to subject its key components, both the scenarios and the models, to the benefits of public transparency through notice-and-comment rulemaking.
To access a copy of the complaint, click here.
X Money Payment System to Launch in 2025
On New Year’s Eve 2024, X CEO Linda Yaccarino posted: “In 2024, X changed the world. Now, YOU are the media! 2025 X will connect you in ways never thought possible. X TV, X Money, Grok, and more. Buckle up. Happy New Year!”
“X Payments LLC has secured money transmitter licenses in 33 U.S. states, a critical step in launching X Money,” Brave NewCoin reported. However, New York—a financial hub—remains a holdout. “Without regulatory approval there, X Money could face significant operational limitations.”
NEACH
NEACH is hosting a 2025 Industry Update webinar on Jan. 16 from 2:00 p.m. to 3:00 pm ET. During this interactive, fast-paced session, attendees will examine changes to industry norms, rules, and regulations that affect their organization, identify which internal policies or procedures may need to be updated based on industry changes, and create a list of action items to summarize points for internal staff discussions.
To learn more or to register, click here.
 |
... |
AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.
|