‘It Is Your Fault:’ Navy Federal Credit Union Refuses to Reimburse Zelle Fraud Victims, Class Action Claims

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A proposed class action alleges Navy Federal Credit Union (NFCU) has failed to protect and reimburse accountholders who reported unauthorized transactions on Zelle, a popular money transfer service.

The 23-page complaint was filed by a Tennessee consumer who claims that the credit union has refused to refund his account after a series of unauthorized Zelle transfers between January and April 2019 cost him $4,630.

According to the suit, Navy Federal is aware that Zelle, which comes embedded in banking apps and is reportedly the most widely used money transfer service in the country, “has become a preferred tool for fraudsters,” yet has not adequately warned accountholders of the issue or protected those who fall victim to fraud. The case says the plaintiff and other victims of Zelle imposters or scam artists have had their fraud claims improperly denied by Navy Federal because it is the credit union’s practice to conduct inadequate investigations and “blame[] fraud victims for the fraud.”

The suit argues that Navy Federal’s failure to reimburse unauthorized Zelle transactions violates its contractual promise to not hold customers liable for fraudulent transfers that are timely reported. For example, the debit card disclosure within Navy Federal’s Zelle terms and conditions assures customers that “if you notify us of suspected fraud within 60 days of the statement date on which the fraudulent transactions first appear, we will not hold you responsible for confirmed fraudulent transactions.” Navy Federal’s deposit agreement also pledges that the credit union will fairly investigate fraud reports, the case relays.

Per the case, Navy Federal evades its fraud protection promises by “unfairly and improperly” determining that fraudulent Zelle transactions are authorized. The claim alleges Navy Federal overlooks definitions of unauthorized electronic fund transfers provided by the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation that specify that no fraudulent or fraud-induced transactions can be considered authorized. According to the case, Navy Federal’s alleged failure to properly investigate and reverse or refund accountholders’ fraudulent Zelle transfers violates their rights under the federal Electronic Fund Transfer Act.

Additionally, the filing argues that Navy Federal has failed to take active steps to detect and prevent Zelle fraud despite its promise to do so in its account documents, and has failed to properly safeguard consumers’ financial information and accounts from malicious third parties.

The plaintiff says that although he never signed up for Zelle, he discovered seven unauthorized Zelle transfers from his Navy Federal account and reported them to the credit union in July 2019. Per the suit, Navy Federal theorized that the fraud occurred because it had linked the plaintiff’s old, compromised debit card to a new checking account in 2018 after the man reported that his previous account had been compromised. Navy Federal suspected that “fraudsters likely had [the plaintiff’s] prior debit card information” and had used it to make the Zelle transfers, the case relays.

According to the complaint, the plaintiff followed up on his claim three times and complied with instructions to submit a detailed written statement and contact Zelle. However, Navy Federal allegedly sent the plaintiff a letter in late July stating that, “[b]ased on a thorough investigation of your account activity, we have determined that no error has occurred.” The letter further noted that the provisional credit of $4630.00 that had been applied to the plaintiff’s account would be reversed on July 25, the filing relays.

The lawsuit looks to cover anyone with a Navy Federal account who reported Zelle transfer(s) they did not authorize to Navy Federal Credit Union and incurred unreimbursed losses.

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