Dive Brief:

• The Consumer Financial Protection Bureau notified a federal court Tuesday that it is ending its lawsuit against Early Warning Services over fraud committed on Zelle, the peer-to-peer payment network, and three of its largest bank owners.
• The agency’s one-page filing in an Arizona district court dismissed the complaint with prejudice, meaning that it cannot be revived in the future. Over the past two weeks, the CFPB has dropped at least a half-dozen lawsuits filed by the Biden administration, including complaints against Capital One, Rocket Homes and TransUnion.
• The agency alleged in its December complaint that EWS and three of its largest Zelle operators – JPMorgan Chase, Bank of America and Wells Fargo – allowed fraud to “fester” on the payments system. The banks’ customers lost $870 million to fraud on Zelle’s platform over seven years, according to the lawsuit.

Dive Insight:

The CFPB’s broad effort to abandon the prior administration’s litigation on behalf of consumers comes as the Trump administration seeks to dismantle the agency, which is embroiled in a lawsuit brought by its unionized employees.

Russell Vought, the director of the Office of Management and Budget who is also serving as the CFPB’s acting director, has described the consumer-protection agency’s past lawsuits as a “weaponization” of the agency.

“More to come, but the weaponization of ‘consumer protection’ must end,” Vought wrote Feb. 23 on X, formerly Twitter, referring to the CFPB’s former lawsuit against SoLo Funds.

In its lawsuit, the CFPB said that hundreds of thousands of Zelle customers had filed complaints about fraud to the banks, but often didn’t get any help, with some being told to contact the fraudulent actors to recover their money. The banks didn’t properly investigate the complaints, and often denied legally required reimbursement for errors and fraud, the agency alleged.

The CFPB also faulted EWS and the named banks for Zelle’s “shoddy safeguards” and faulty design that allowed fraudsters to thrive on the network. 

A spokesman for EWS, Eric Blankenbaker, said that the lawsuit was “without merit, and legally and factually flawed.” “We look look forward to continuing to provide Zelle, a trusted service, to 151 million enrolled American consumer and small business accounts,” he wrote in an email to Payments Dive. 

The Consumer Bankers Association said in an emailed statement that banks have “consistently followed the law in offering services through Zelle.”

“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,” the CBA’s president and chief executive, Lindsey Johnson, said in the statement. 

In an emailed comment, a JP Morgan spokesperson said that “banks play a crucial role in scam prevention and consumer education, but this is a national security problem that requires a collective effort across the public and private sectors.”

Last month, EWS said that consumers and small businesses had sent some $1 trillion on the Zelle network in 2024, a 27% increase over the prior year, with 151 million users. Zelle’s payments volume rose 25% last year, to 3.6 billion transactions.

The CFPB alleged that the banks felt threatened by competing payment apps such as PayPal’s Venmo service and Block’s Cash App. As a result, EWS’s bank owners “rushed to put out Zelle,” former CFPB Director Rohit Chopra said in a December news release announcing the lawsuit.

“By their failing to put in place proper safeguards, Zelle became a gold mine for fraudsters, while often leaving victims to fend for themselves,” Chopra said.

EWS came under fire after a March 2022 report by The New York Times that scams were flourishing on the Zelle app. The following month, Sen. Elizabeth Warren, D-Massachusetts, opened an investigation of Zelle.

Early Warning Services, based in Scottsdale, Arizona, was established in 2017. Its other bank owners are Capital One, PNC, Truist and U.S. Bank.

Last month, a White House document described the CFPB as “a woke, weaponized arm of the bureaucracy that leverages its power against certain industries and individuals disfavored by so-called “elites.”