JPMorgan Chase is prepared to sue the U.S. government over Zelle scams

Buried in about 200 pages of quarterly Archive from JPMorgan Chase Eight words last month highlighted how contentious the bank's relationship with the government has become.

The lender revealed, Consumer Financial Protection Bureau JPMorgan Chase may be punished for its role in Zelle, a giant peer-to-peer digital payments network. The bank is accused of failing to remove criminal accounts from its platform and failing to provide compensation to some fraud victims, according to people who spoke on condition of anonymity.

In response, JPMorgan issued a thinly veiled threat: “The company is evaluating next steps, including litigation.”

Policy experts said the prospect of banks suing regulators was unheard of in the early days, largely because companies had feared angering regulators in the past. These experts say this is particularly the case in the U.S. banking industry, which required hundreds of billions of dollars in taxpayer bailouts to survive after irresponsible lending and trading led to the 2008 financial crisis.

But a combination of factors in recent years has combined to create an environment of unprecedented division between banks and their regulators.

Trade groups say banks are an easy target for populist attacks by Democratic-led regulators in the wake of the financial crisis. Supervisors, for their part, point out that banks and their lobbyists increasingly rely on court Resist reform in Republican-dominated districts and protect billions of dollars in fees at the expense of consumers.

“If you go back 15 or 20 years ago, people would have thought that fighting regulators wasn't particularly smart, and that litigating all these things was just poking a hornet's nest,” he said. Tobin MarcusDirector of U.S. Policy at Wolff Research.

“The gap between the ambition of (President Joe) Biden’s regulatory agencies and the degree of conservatism of the courts, at least part of the courts, has historically been huge,” Marcus said. “This sets the stage for the success of regulatory proposals. Industry litigation creates a lot of opportunities.”

These forces are colliding this year, which has begun with the biggest impact on bank regulation since the 2008 reforms. Curbing risk-taking on Wall Street, introducing annual stress tests and creating the industry's main adversary, the CFPB.

“The industry is facing an onslaught of regulatory and potential legislative changes,” marian lakeJPMorgan's head of consumer banking issued a warning to investors in May.

JPMorgan reveals CFPB investigation of Zelle comes years later barbecue Democratic lawmakers have launched an investigation into financial crimes on the platform. Zelle was launched in 2017 by a company called Early warning service Counter threats from peer-to-peer networks, including PayPal.

The vast majority of Zelle's activities are peaceful. Of the $806 billion that moved online last year, only $166 million in transactions were questioned by JPMorgan Chase clients as fraudulent. Bank of America and Wells Fargothe three largest players on the platform.

But according to July Senate data, the three major banks combined only reimbursed 38% of claims. Report Review of disputed unauthorized transactions.

Banks are generally liable for reimbursing fraudulent Zelle payments made without the customer's permission, but losses are generally not refunded if a customer was tricked by a scammer into authorizing a payment. according to Electronic Funds Transfer Act.

Head of Payments, JPMorgan Chase Tell Lawmakers said in July that banks effectively compensated 100 percent of unauthorized transactions; the Senate report found the discrepancy because bank personnel often determined customers had authorized transactions.

Amid the review, the bank began warning Zelle users on the Chase app to “stay away from scams,” adding that customers were unlikely to receive refunds for fake transactions.

JPMorgan declined to comment for this article.

Under the CEO's leadership, the company has grown into the largest and most profitable U.S. bank in history Jamie Dimon has been at the center of several other skirmishes with regulators.

Dimon may be one of the few CEOs qualified to publicly criticize regulators because of his reputation for steering JPMorgan through the 2008 crisis and last year's regional banking turmoil. A public and behind-the-scenes campaign led by Dimon this year underscores that close the doorweakening the Basel proposals.

In May, at JPMorgan Chase's investor day, representatives for Dimon argued that Basel and other regulations would ultimately harm consumers rather than protect them.

The cumulative effect of the upcoming regulations will increase mortgage costs by at least $500 a year and increase credit card interest rates by 2%; it will also force banks to charge checking account fees for two-thirds of consumers, JPMorgan said.

The message: Banks will not only bear the additional costs of regulation but also pass them on to consumers.

While all these battles continue, the financial industry has scored several victories so far.

Some believe the threat of lawsuits helped persuade the Fed to introduce new Basel Endgame proposals this month that would roughly cut in half the extra capital the largest institutions are forced to hold, among other industry-friendly changes.

It's not even clear whether a watered-down version of the proposal – a long-term response to the 2008 crisis – will be implemented, as it won't be finalized until well after the US election.

If Republican candidate Donald Trump wins, the rules could be further weakened or repealed entirely, and the industry could fight the regulation in court even under a Kamala Harris administration.

That's what banks are doing with the CFPB's credit card rule, which aims to cap late fees at $8 per incident and is set to take effect in May.

a last ditch effort from american chamber of commerce and banking trade group successfully delayed its implementation Judge Mark Pittman The Northern District of Texas court sided with the industry and approved a freeze on the rule.

A key strategy for banks is to litigate in conservative jurisdictions where they are likely to win. Yu LuoliAssociate Professor at Columbia Business School, who studies the interaction between corporations and the judicial system.

North Texas power supply Fifth Circuit Yue said the appeals court was “known for its friendly attitude towards industry litigation against regulators”.

“Shopping at venues like this has become an established corporate strategy,” Yue said. “The financial industry has been particularly active this year in suing regulators.”

Since 2017, nearly two thirds Half of the lawsuits filed by the U.S. Chamber of Commerce challenging federal regulations are filed in court under: Fifth Circuitaccording to analysis Responsible America.

Yue added that industries dominated by a handful of large players, such as banks, airlines, pharmaceutical companies and energy companies, tend to have well-funded trade groups that are more likely to resist regulators.

polarized environment, in which weaken Federal agencies were weakened by conservative courts that ultimately preserved the dominance of the largest corporations. Brian Grahamco-founder of banking advisory firm Klaros.

“It's really bad in the long run because no matter what the regulations are, it's going to be set in stone and the reality is the world is changing,” Graham said. “When you can't adopt new regulations for fear of getting sued, That's what happens.”

—Factory visualization by CNBC's Gabriel Cortes.