The Consumer Finance Protection Bureau (CFPB) has dropped its lawsuit against three US banks which operate the Zelle payments platform.
Launched in December, the lawsuit alleged that fraud had been allowed to ‘fester’ via the platform and that Americans had lost millions as a result. The suit targets Bank of America, Wells Fargo and JP Morgan, one of seven banks to operate Zelle alongside PNC Bank, US Bank, Truist and Capital One.
The CFPB alleged that the banks had rushed the development of the peer-to-peer payment network, which is operated by Early Warning Services along with the seven banks, to quickly face competition from P2P apps like CashApp and Venmo. This rushed development created conditions allowing fraud to proliferate, the regulator claimed.
Commenting at the time, then-CFPB Director, Rohit Chopra, said: “The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle.
“By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves.”
In a twist of events, however, the CFPB announced yesterday (4 March) that it was dropping the suit. The development comes at a pivotal moment for the regulator, which is standing at a crossroads.
Donald Trump has returned to the White House with a much more hard hitting agenda, and a fierce determination to execute it, compared to his first tenure between 2016-2020.
This has included a campaign of cost cutting at the federal level, a task which has fallen on business tycoon Elon Musk and his Department of Government Efficiency (DOGE).
In a major move last month, the CFPB was told by its Acting Director, Russell Vought, to cease all activity and investigations. At the same time, Musk posted on his X social media platform a brief, blunt statement reading ‘CFPB RIP’, suggesting that the decision is likely related to his cost cutting campaign.
The CFPB’s decision to shelve the Zelle investigation may or may not be as a result of the order to cease investigations, a decision which has been confronted legally by the regulator’s employees who argue that only Congress can dictate a federal agency’s mission.
Regardless, it is indicative of changing regulatory attitudes in the US under Trump’s administration. While Trump can be an often volatile politician, his preference for hands-off regulation has remained consistent throughout his political career, and is clearly making its mark two months into his second presidential term.
