Peer-to-Peer Payment Systems: A Platform for Fraudulent Convenience?

By: Mathena Jencka, Class of 2027

Overview

Peer-to-peer (“P2P”) payment systems and transactions have become second nature for many of us. The seamless transaction of sending money through one of the many apps—whether for a night out with friends or splitting utilities with a roommate—is unprecedented. However, the convenience was too good to be true. Over the years, millions of users have come forward with complaints of fraudulent transactions on the apps, which has caught the attention of the Consumer Financial Protection Bureau (“CFPB”).[1] An official complaint was filed by The Bureau in late December of 2024, but was quickly dropped in early March.[2]

            P2P transactions and payment systems were first introduced in the 1990s, with PayPal pioneering the way, which allowed for the transfer of funds via the internet.[3] This newly established mechanism to exchange money has transformed significantly over the past few decades, especially with the introduction of platforms that transfer money through mobile apps, such as Venmo and Cash App.[4] As these platforms were entering the market, major banks recognized the competitive threat that was looming. Bank of America, Chase, and Wells Fargo partnered with Early Warning Services, LLC, a consumer reporting company owned by major banks, to introduce the Zelle platform.[5]

            Since hitting the market in 2017, Zelle has been one of the most widely accessible P2P payment platforms, with over 2,200 banks and credit unions offering the network to customers.[6] It boasts more than 143 million users in the United States and has facilitated the transfer of over $481 billion through more than 1.7 billion transactions.[7] Many users were led to believe that Zelle offered the utmost banking security.[8] However, unlike many typical banking systems, Zelle does not offer purchase protection, despite being marketed as “safe” or “secure.”[9] Once a user authorizes a payment to be sent over Zelle to an enrolled recipient, the transaction cannot be canceled, as the payment is deposited into the recipients bank account within minutes.[10] Since Zelle’s launch, there has been more than $800 million worth of fraudulent transactions, yet consumers have been denied relief from their banks, which claim they bear no responsibility for reimbursement.[11] For example, the United States Senate Permanent Subcommittee on Investigations released that the reimbursements of fraud disputes dropped from 62% in 2019 to 38% in 2023 at the three largest banks that offer Zelle services.[12]

The Complaint

            As the instances of fraudulent schemes on Zelle continued to proliferate, The Consumer Financial Protection Bureau, an independent U.S. government agency responsible for overseeing consumer protection in the financial sector, decided to file a formal complaint.[13] The CFPB named some of America’s largest banks, including Bank of America, Chase, Wells Fargo, along with Early Warning Services, as defendants in this case.[14] Filed in federal court in Arizona, the complaint alleged that, in addition to exposing consumers to fraud, the defendants violated federal consumer financial laws governing electronic fund transfers. Specifically, the CFPB alleged that the defendants failed to conduct reasonable investigations when consumers experienced fraud or inaccuracies in the Zelle Network Directory, leading transfers to be sent to incorrect recipients.[15] Additionally, the CFPB claimed that Zelle’s limited identity verification and security measures enabled seamless scamming and failed to report instances of fraud when necessary.[16] The complaint sought relief to halt unlawful conduct and future violations, provide redress for defrauded consumers, and to impose a civil monetary penalty upon defendants.[17]

            However, just a few months after filing the complaint, the CFPB dismissed the lawsuit with prejudice, meaning that the case cannot be reopened.[18] Since early February, following the appointment of Russell Vought, Director of the Office of Management and Budget, as the Acting Director of the CFPB by President Trump, the agency has dismissed several cases originally brought by the previous director.[19] Not only were these cases dropped, but the CFPB has agreed to never bring these claims again, which could limit the possibility of consumers receiving relief.[20]

What’s Next for P2P Transactions?

            As of mid-March, after the current administration terminated many of the agency’s employees, the CFPB’s consumer response team is continuing to sift through over 16,000 complaints.[21] However, with this backlog, U.S. News suggests that there are many ways that users can take precautionary measures to protect themselves from Zelle scams.[22] Some suggestions are drastic, such as refraining from using the service.[23] Other suggestions include ensuring that you are sending the money to the correct person by either using the recipient’s email address, rather than phone number, to reduce typos or transferring one dollar to the intended recipient and obtaining verbal confirmation from them of receipt before sending a larger amount.[24] However, if you have been a victim of fraud, immediately contact your bank or credit union for possible relief and report your experience to Zelle, the Federal Trade Commission, and the Internet Crime Complaint Center.[25]          

[1] See Michelle Chapman, CFPB drops lawsuit against Bank of America, JPMorgan Chase, and Wells Fargo over Zelle fraud, The Associated Press (Mar. 5, 2025), https://apnews.com/article/cfpb-zelle-trump-wells-fargo-jpmorgan-chase-c70332d2b16d733e9c4e72622d4c25f9.

[2] Id. 

[3] See Peer to Peer Payments: A Deep Dive into the Digital Revolution of Money Transfers, GALA Technology (last accessed on Mar. 25, 2025), https://www.galatechnology.co.uk/peer-to-peer-payments#:~:text=The%20inception%20of%20P2P%20payments,new%20way%20of%20money%20exchange.

[4] See The Rise of P2P Payments, Clearly Payments (Nov. 2, 2023), https://www.clearlypayments.com/blog/the-rise-of-p2p-payments/.

[5] See Compl. 1; Consumer Financial Protection Bureau v. Early Warning Services, LLC, No. 2:24-cv-03652-SMB (D. Ariz. Dec. 20, 2024).

[6] Compl. at 2-4.

[7] Id.

[8] See Sophia Acevedo, Tanza Loudenback, Navigating the Risks: Understanding Zelle Scams, Business Insider (Jul. 23, 2024), https://www.businessinsider.com/personal-finance/banking/zelle-scams.

[9] Id. See also Compl. at 11.

[10]  See Zelle, Think you’ve been scammed or a victim of fraud? (last accessed on Mar. 25, 2025), https://www.zellepay.com/zelle-safety.

[11] See Stacy Cowley, Lawsuit Over Zelle Scams Is Dropped by Consumer Bureau, The New York Times (Mar. 4, 2025),  https://www.nytimes.com/2025/03/04/business/zelle-scams-cfpb-lawsuit.html.

[12] See Marcie Geffner, Protect Your Money From Zelle Scams, U.S. News, (Mar. 13, 2025), https://www.usnews.com/banking/articles/protect-your-money-from-zelle-scams.

[13] See Consumer Financial Protection Bureau, The CFPB (last accessed on Mar. 25, 2025) , https://www.consumerfinance.gov/about-us/the-bureau/.; Jeanne Sahadi, JPMorgan Chase, Bank of America and Wells Fargo sued for failing to prevent fraud on Zelle, CNN Business (Dec. 20, 2024), https://www.cnn.com/2024/12/20/business/zelle-fraud-lawsuit-banks/index.htm. 

[14] Id. 

[15] Compl. at 4.

[16] Id.

[17] Id. at 89-90.

[18] See Paige Smith, CFPB Drops Suit Against US Banks Over Alleged Fraud on Zelle, Yahoo!Finance (Mar. 4, 2025), https://finance.yahoo.com/news/cfpb-drops-lawsuit-against-us-181011101.html.

[19] See Ballard CFS Group, Vought halts most work at CFPB, Ballard Spahr LLP (Feb. 10, 2025), https://www.consumerfinancemonitor.com/2025/02/10/vought-halts-most-work-at-cfpb/. 

[20] Id. 

[21] See Stacy Cowley, Left for Dead, the C.F.P.B. Inches Back to Life, The New York Times (Mar. 15, 2025), https://www.nytimes.com/2025/03/15/business/trump-cfpb.html.

[22] See Marcie Geffner, Protect Your Money From Zelle Scams, U.S. News, (Mar. 13, 2025), https://www.usnews.com/banking/articles/protect-your-money-from-zelle-scams.

[23] Id.

[24] Id. 

[25] See Zelle, Report a Scam or Fraud (last accessed on Mar. 25, 2025), https://www.zellepay.com/support/report-scam#:~:text=If%20you%20have%20been%20a,your%20bank%20or%20credit%20union.