The Consumer Financial Protection Bureau dismissed a lawsuit against payment app Zelle's parent company, Early Warning Services, and its three largest bank owners, the latest in a string of Biden-era CFPB suits dropped by the Trump administration.
On Tuesday, CFPB Chief Legal Officer Mark Paoletta filed a
The decision to drop the Zelle case was unsurprising, given the Trump administration's evident antipathy toward the bureau and its tactics under President Joe Biden. Acting CFPB Director and Office of Management and Budget Director Russell Vought has sought to
But a critical issue in the case was the CFPB's view that banks be required to reimburse customers for what it called "induced fraud," when a consumer is tricked into sending money to someone under false pretenses. Such authorized transactions would have made banks liable for scams perpetrated by criminals, including romance scams and various imposter schemes. Roughly 60% of scams on Zelle originate on social media, the banks claim.
"As we've said before, this lawsuit was without merit, and legally and factually flawed," Zelle spokeswoman Jane Khodos said. "We look forward to continuing to provide Zelle, a trusted service, to 151 million enrolled American consumer and small business accounts."
Banks and lawmakers repeatedly said the CFPB should issue a rulemaking if it sought to mandate that consumers get repaid for authorized transactions that turned out to be fraudulent.
"Banks have consistently followed the law in offering services through Zelle," said Lindsey Johnson, president and CEO of the Consumer Bankers Association. "In a time when fraud and scam activity is surging across industries and government alike, we look forward to moving past finger pointing and political grandstanding and, instead, working constructively with policymakers to counter the root causes of these threats."
In December, the CFPB sued Zelle and the banks alleging the payment app failed to protect consumers. The bureau alleged that consumers racked up losses of more than $870 million over the seven years that Zelle had operated. Though Early Warning Services is owned by seven big banks, the CFPB only sued the three largest because they represent 73% of all Zelle network activity. The bureau's
"The millions of people who use digital payment apps are vulnerable to fraud and misuse of their private data," said Lauren Saunders, associate director at the National Consumer Law Center.
A key problem in determining fraud and scams on Zelle was the lack of publicly available data. Further, the CFPB appeared in its lawsuit to expand the definition of Regulation E to require that banks reimburse customers for all unauthorized transactions.
The bureau alleged — against the cries of overreach by banks — that the banks' failure to prevent fraud constituted an "unfair" practice that could be enforced under its general prohibition against "unfair, deceptive or abusive acts or practices," known as UDAAP.
A spokesperson for JPMorgan Chase spokesperson said that while banks play a crucial role in scam prevention and consumer education, the widespread proliferation of scams "is a national security problem that requires a collective effort across the public and private sectors."
"We look forward to continuing to work with government, law enforcement, banks, social media, telecom, and technology companies to effectively address these crimes at their source," the spokesperson said.
Consumer groups said the CFPB had capitulated to big banks.
"Trump's corporate pardons are leaving the door wide open for fraudsters and criminals to plunder Americans' pocketbooks, and hardworking families are being treated as the casualties of the Trump administration's desperate attempts to appease billionaire corporations," Erin Witte, director of consumer protection at Consumer Federation of America, said in a press release.
Paoletta, working for Vought, has
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