CFPB Drops Lawsuit Against Banks Over Zelle Scams

The Consumer Financial Protection Bureau on Tuesday dismissed a sweeping lawsuit against three of the nation’s largest banks over what the agency had described as shoddy safeguards on their Zelle money transfer network that allowed scammers to steal hundreds of millions of dollars from customers.

The lawsuit, filed in federal court in Arizona in the waning days of the Biden administration, was an example of what the bureau’s critics often denounce as “rule-making by enforcement.” Federal law requires banks to refund customers for unauthorized transactions made on their accounts by someone other than the account holder. But Zelle scams often trick victims into transferring cash themselves.

Banks have said they have no responsibility for reimbursing customers for transactions they made themselves, even if they were deceived into doing so.

Zelle is operated by Early Warning Services, which is based in Scottsdale, Ariz. The consumer bureau sued Early Warning and three of its owners — Bank of America, JPMorgan Chase and Wells Fargo — for allowing transactions that the agency said were fraudulent and totaled more than $800 million.

Rohit Chopra, then the bureau’s director, described Zelle as “a gold mine for criminals — a system that made it easy for fraudsters to move money quickly while making it nearly impossible for customers to get their money back.”

The case had the potential to reshape the steps that banks must take to shield their customers from fraud on payments apps.