Consumer agency drops Zelle lawsuit against big banks in latest legal pullback
In the waning days of the Biden administration, the Consumer Financial Protection Bureau filed a series of lawsuits against financial companies it accused of running roughshod over the public.
Now, the agency under a new interim director is rapidly withdrawing those cases and others, with the CFPB most recently filing a motion this week in Arizona federal court to drop a December lawsuit against payment app Zelle and its big bank backers.
The lawsuit accused the company that operates the app on behalf of a consortium of banks — including defendants Wells Fargo, JP Morgan Chase and Bank of America — of rushing to launch the service to compete with Venmo and other payment apps.
Without adequate consumer safeguards, Zelle users experienced $870 million in fraud-related losses, it alleged.
'We welcome the CFPB's decision to drop its lawsuit against the Zelle network. As we've said before, this lawsuit was without merit, and legally and factually flawed,' said a spokesperson for Early Warning, the Scottsdale, Ariz., company that operates Zelle for the banks.
The CFPB moved to dismiss the case in a brief legal filing and has not issued a statement explaining its decision, but the move is the latest in a series of case dismissals and other actions intended to rein in the agency since Biden appointee Rohit Chopra was fired by Trump on Feb. 1.
The agency did not respond to a request for comment.
Acting chief Russell Vought — also Trump's director of the Office of Management and Budget and a leader of the administration's mission to downsize the federal government — has ordered staff to stop all 'supervision and examination activity' and has sought to reduce the agency's funding, saying in a tweet: 'This spigot, long contributing to CFPB's unaccountability, is now being turned off.'
The CFPB filed a lawsuit in January against Capital One Financial Corp., accusing the financial services company of cheating customers out of $2 billion in interest payments, but the agency dismissed the case last month.
The CFPB similarly withdrew a case it filed against Vanderbilt Mortgage and Finance, a company owned by Warren Buffett's Berkshire Hathaway, which it accused of trapping mobile home buyers into unaffordable loans that cost them fees and penalties and even the loss of their homes.
Other lawsuits that have been dropped include cases against student loan servicer Pennsylvania Higher Education Assistance Agency, which was accused of collecting on loans in bankruptcy; Heights Finance, which allegedly engaged in illegal 'loan churning' to generate more fees; and Rocket Homes, one of the country's largest home lenders, which was accused of illegal kickbacks.
When the Rocket Homes case was dropped last month, the lender called the suit 'an empty claim brought forth by former CFPB director Chopra for the sole purpose of seeing his name in headlines during the final days in public office.'
Rick Claypool, a researcher at Public Citizen, said it was expected that the Trump administration would seek to pull back from aggressively prosecuting financial companies accused of wrongdoing, but not to such an extent.
'What has happened is that it is played out with somewhat shocking speed and recklessness, with whole categories of corporate enforcement being dropped and paused,' said Claypool, author of a report released Wednesday, which calculated the administration halted or moved to dismiss investigations against 89 corporations across multiple federal agencies.
The consumer group last month joined with other advocacy groups and a federal union in filing a lawsuit against the CFPB and Vought challenging what it calls the 'unlawful dismantling' of the agency, which was established by an act of Congress.
During the first Trump administration, the agency issued payday lender rules that consumer groups considered weaker than what the CFPB had proposed under the Obama administration. But it also pursued enforcement actions against banks, including reaching a consent order with Citibank, which agreed to pay $335 million in restitution to customers over allegations it violated Truth in Lending Act violations.
While Vought is currently running the agency, President Trump has nominated attorney and former Federal Deposit Insurance Corp. director Jonathan McKernan to be its chief.
During his confirmation hearing last month, McKernan pledged to 'implement and enforce the federal consumer financial laws and perform each of [the agency's] other statutorily assigned functions' — even as Vought has reportedly sought to cancel the lease on the CFPB's headquarters.
Chopra, in an interview last month, said opposition to the agency stems not only from traditional banking and lending firms, but from big Silicon Valley tech companies that want to get into the finance business.
'We know that their tentacles are all over, and many have significant aspirations in banking, lending and payments,' Chopra told Drop Site News, specifically mentioning Google, Apple and Facebook, which attempted to launch its own currency, Libra, several years ago.
He also noted that Elon Musk — who tweeted in a November post on X 'Delete CFPB. There are too many duplicative regulatory agencies.' — wants to turn the social media site into a payments platform.
'I think it's reasonable for Americans to wonder why he is targeting this little agency. And I think a lot of the opposition is coming from tech conglomerates, because ... the agency has been a speed bump in their plans,' he said.
There has been at least one enforcement that Vought said the CFPB will pursue — a lawsuit against online lender MoneyLion, which was accused by the agency in 2022 of violating the Military Lending Act by overcharging on loans to service members and their dependents. MoneyLion has denied the allegations.
The Associated Press and Bloomberg contributed to this report.
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