The CFPB drops its misguided case against Zelle

Seemingly as part of the general order to stop work by acting director Russ Vought, the Consumer Financial Protection Bureau (CFPB) has dropped its misguided case against the operators of popular payment app Zelle. This is a victory for financial innovation and consumer convenience.

The case should never have been brought in the first place. As I argued back in December, when the CFPB quixotically launched its action during the dying days of the Biden administration, the Bureau was punishing banks for offering a service that scammers happened to use, which was like punishing banks because a scammer persuaded someone to write a check.

With good fortune, this will be the last time financial agencies try to use the philosophy behind Operation Choke Point, which (charitably) was that if fraudsters abuse banking services, regulators should go after the banks to stop them. Even if the aim was somewhat noble (and there is plenty of evidence otherwise), the result was vast amounts of collateral damage as legitimate industries and customers found themselves cut off from banking services.

In this case, the likely result of regulatory action would have been less responsiveness to customer demand, less innovation, and a banking sector increasingly outflanked by the nonbank sector in providing customers with what they need.

As Consumer Bankers Association President and CEO Lindsey Johnson said in a statement following the news that the case had been dropped,

“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.”

Regulators do indeed need to focus on the actual crimes that hurt consumers rather than punishing banks for meeting consumer demand. Acting Director Vought deserves applause for this move.