CFPB drops lawsuit against Zelle operator and major banks

The lawsuit, originally filed in 2024, accused the companies of failing to address widespread fraud on the platform. This decision is part of an effort by the current administration to scale back litigation initiated under its predecessor. 

The lawsuit alleged that banks failed to adequately investigate fraud complaints from Zelle users, with some customers being advised to contact scammers directly to recover their lost funds. The CFPB claimed that banks frequently denied reimbursement for fraudulent transactions, despite legal obligations to do so. Additionally, the agency criticised EWS and its partner banks for what it described as poor security measures and a flawed system design that made the platform vulnerable to fraudsters. 

Officials from EWS defended the company’s handling of fraud cases, stating that the lawsuit lacked merit and was based on flawed legal and factual premises. In an emailed statement, representatives from the Consumer Bankers Association maintained that banks had adhered to legal requirements in their operation of Zelle.

Political context and CFPB leadership changes

The decision to drop the case follows efforts by the administration to overhaul the CFPB. The acting director, who also heads the Office of Management and Budget, has been critical of previous CFPB litigation, describing it as an inappropriate use of the agency’s authority. In a social media post, the acting director indicated that the withdrawal of the lawsuit was part of a broader strategy to prevent what he called the misuse of consumer protection laws. 

Criticism of Zelle’s fraud controls intensified following a 2022 media investigation that highlighted the prevalence of scams on the platform. Shortly afterward, a congressional inquiry was launched to examine fraud-related issues within the payment network.

Growth of Zelle despite fraud concerns

Despite the controversy, Zelle continues to see significant growth. EWS reported that transactions on the platform reached USD 1 trillion in 2024, marking a 27% increase from the previous year. The number of users also climbed to 151 million, with transaction volume growing by 25% to 3.6 billion payments. 

The CFPB previously suggested that competition with peer-to-peer payment services such as PayPal’s Venmo and Block’s Cash App influenced the banks’ rapid deployment of Zelle. A former CFPB director argued that the lack of robust security measures turned Zelle into a prime target for fraudulent activity, often leaving victims without recourse.