CFPB Drops Lawsuit Against Banks Over Zelle Fraud

The Consumer Financial Protection Bureau (CFPB) has dropped its lawsuit against Bank of America, JPMorgan Chase, and Wells Fargo, along with the operator of the Zelle peer-to-peer payment network, Early Warning Services. The CFPB filed the lawsuit in December 2024, alleging that the banks and the operator failed to protect consumers from widespread fraud on the Zelle network. The lawsuit claimed that the defendants rushed to launch Zelle to compete with other payment apps, without implementing effective consumer safeguards. As a result, consumers lost more than $870 million over the network's seven-year existence due to fraud.

The CFPB's lawsuit described how hundreds of thousands of consumers filed fraud complaints and were largely denied assistance. The banks and the operator were accused of failing to investigate complaints or provide consumers with legally required reimbursement for fraud and errors. The CFPB sought to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief.

However, the CFPB dismissed the lawsuit with prejudice, indicating that it will not pursue the matter further. This move comes as part of a broader trend of the new administration pulling back from enforcement actions and halting the work of the agency. The CFPB's D.C. headquarters has been shuttered, and scores of employees have been fired.

Consumer advocates have criticized the CFPB's decision, arguing that it leaves consumers vulnerable to predatory business practices and fails to protect them from fraud. The CFPB's decision may also embolden fraudsters, as they may perceive the banks and the CFPB as less likely to take action against them. This could result in an increase in fraudulent activities on the Zelle network.

The CFPB's decision to drop the lawsuit has potential implications for consumers who have been victims of fraud on the Zelle network. Consumers may find it more difficult to seek redress, as the lawsuit was an attempt to hold the banks accountable for failing to protect consumers and reimburse them for fraudulent transactions. Without this legal recourse, consumers may struggle to recover their losses. The banks may continue their current policies regarding fraud on Zelle, which have been criticized for not adequately protecting consumers. This could lead to more consumers falling victim to fraud and losing money. The decision to drop the lawsuit could potentially embolden fraudsters, as they may perceive the banks and the CFPB as less likely to take action against them. This could result in an increase in fraudulent activities on the Zelle network.