The Consumer Financial Protection Bureau (CFPB) has dropped its lawsuit against the Bank of America, JP Morgan Chase, and Wells Fargo after accusing them of failing to protect consumers from fraud on payment network Zelle.

The regulator has also withdrawn its legal action against the operator of the payment network.

Zelle is a digital payment service that allows users to quickly send and receive money between bank accounts in the US. The application is integrated directly into the mobile banking applications of many US banks, seeking to facilitate and speed up transaction actions with all functions in a single application.

These lawsuits had been filed during the tenure of former president Joe Biden and were dropped after president Donald Trump fired Consumer Financial Protection Bureau director Rohit Chopra in February, replacing him with treasury secretary Scott Bessent.

In the same week, Bloomberg Law reported that Bessent had ordered CFPB employees to stop all regulatory, communication and litigation activities, and to continue only those activities authorised by Bessent or required by law.

In December 2024, the CFPB filed a lawsuit against the app and its parent banks, alleging that they had failed to implement adequate safeguards to prevent fraudulent activity.

The lawsuit claimed that since Zelle's launch in 2017, customers had collectively lost over $870 million due to vulnerabilities in the system that included limited verification methods and insufficient support for fraud victims.

In recent weeks, the CFPB withdrew several lawsuits, including those against Capital One and Solo Funds that alleged these financial firms had been using deceptive marketing strategies.

The CFPB's decision to drop the Zelle case has sparked a debate on the agency's regulatory approach to law enforcement under its new leadership.

“Dismissing this lawsuit against the big banks that own Zelle is another troubling sign that the CFPB’s new leadership is dramatically pulling back from enforcing the law and protecting consumers who have been mistreated by banks and other financial firms,” said Chuck Bell, advocacy program director at Consumer Reports, a non-profit organisation in the US focused on providing unbiased reviews on products and services including financial ones.

In a post on the organisation's website on Tuesday, Bell argued that fraud has become increasingly common on payment apps like Zelle and that consumers have little chance of recovering money from their bank if they are tricked into sending a payment to fraudsters.

Bell continued:, “Consumers who have been treated unfairly by banks, paycheck advance companies and other lenders stand to lose billions of dollars in potential relief if the CFPB continues to abandon its pending lawsuits against other financial industry wrongdoers.”

In 2023 alone, consumers reported losing $210 million to peer-to-peer payment app scams, an 62 per cent increase over 2021, the organisation reported.

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