Navy Federal Credit Union (NFCU) faces a proposed class action that alleges the financial institution has failed to disclose the significant fraud risks associated with using the Zelle money-transfer service.
According to the 19-page complaint, the defendant has represented to accountholders that Zelle is a secure, free and convenient way to transfer funds while failing to disclose a key fact—that there is “virtually no recourse” for consumers to recoup money lost due to fraud, the suit says.
The lawsuit claims that although virtually every other payment method provides protection for fraud victims, it is NFCU’s “secret policy” to refuse to reimburse Zelle users who fall victim to fraud. From the complaint:
“The unique, misrepresented, and undisclosed architecture of the Zelle payment system means—again, unlike other payment options commonly used by American consumers—that virtually any money transferred for any reason via Zelle is gone forever, without recourse, reimbursement or protection.”
According to the case, NFCU’s representations regarding the safety and security of the Zelle network were therefore false given that the credit union provides no recourse for fraud victims. The case contends that NFCU accountholders would not have used Zelle had they known of the true risks involved.
Zelle, the lawsuit explains, is operated by Early Warning Services, a company formed in 2017 by the largest banks in the U.S.—namely, Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo. Per the case, roughly 1,500 member banks and credit union participate in the Zelle service, which is reportedly the most widely used money-transfer service in the U.S.
What many users don’t know, the case says, is that Zelle is plagued by fraud and has become “a preferred tool for fraudsters like romance scammers, cryptocurrency con artists and those who use social media sites to advertise fake concert tickets and purebred puppies.” According to the suit, scams such as these have run rampant on the Zelle network due to its inherent design—particularly the fact that money transfers are “instantaneous and unrecoverable.”
The lawsuit claims that NFCU has marketed Zelle as a fast and secure way to transfer money while failing to warn accountholders of the critical fact that they may face “huge, unreimbursed losses” as a result of using the service.
“The 1500 banks and credit unions who are members of the Zelle network, including NFCU, know full well that they have a widespread fraud problem on their hands, but have misrepresented and failed to take steps to warn their accountholders of these risks—or protect their accountholders who fall prey to fraud,” the complaint alleges.
The lawsuit says that even when an accountholder timely reports fraud on the Zelle network to NFCU, the credit union refuses to reimburse their losses and thus provides no protection for fraud victims.
According to the suit, these “huge, undisclosed security risks” are never made known to consumers at any point during the sign-up process for Zelle or thereafter.
The plaintiff, a Linden, New Jersey resident, says she was tricked by fraudsters into transferring nearly $3,000 from her bank account, believing she was paying for utilities. After discovering that she had fallen victim to fraud, the plaintiff “immediately informed NFCU” but was refused reimbursement for her losses, the case relays.
“Had Plaintiff and the Class members known of the true operation and risks of the Zelle service—risks NFCU alone was aware of and actively misrepresented—they would not have signed up for and used the Zelle service,” according to the suit.
The lawsuit, which was initially filed in Union County Superior Court before being removed to New Jersey’s District Court on May 18, looks to represent anyone with a NFCU account who signed up for the Zelle service and incurred unreimbursed losses due to fraud.
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