The Consumer Fraud Promotion Bureau

January 8, 2025 1:00 pm
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Rohit Chopra’s assault on Zelle will create more openings for crooks.

We’re told Rohit Chopra is trying to persuade the Trump team to retain him as director of the Consumer Financial Protection Bureau. Elizabeth Warren would love nothing more as she made clear this week by praising her acolyte’s new and dubious lawsuit against the peer-to-peer payment app Zelle.

The CFPB sued Zelle and its bank owners last month for not doing enough to stop fraud. There’s no doubt consumer scams are multiplying as criminals exploit technology such as artificial intelligence, and law enforcement has struggled to keep up. But Mr. Chopra wants to make banks reimburse swindled customers.

“This is exactly why we need a strong CFPB—to protect middle-class consumers when the big banks won’t,” Ms. Warren tweeted Thursday. But Mr. Chopra is inviting more fraud with his lawsuit. This is why we need a CFPB leader who will follow the law.

Zelle, which is owned by several large banks, lets customers of 2,200 participating banks and credit unions instantaneously transfer money to a recipient with a phone number or email address. With a few swipes, Zelle users can pay rent, repay friends, send gifts and make purchases on social media, among other things, without a fee.

But the transactions aren’t risk-free because crooks sometimes pose as safe counterparties. Mr. Chopra blames Zelle rather than scammers. “Early Warning Services, which operates Zelle, along with three of its owner banks—Bank of America, JPMorgan Chase, and Wells Fargo—rushed the network to market to compete against growing payment apps such as Venmo and CashApp, without implementing effective consumer safeguards,” the lawsuit says.

Much of the lawsuit is redacted, but the public parts don’t support this claim. The CFPB even acknowledges that Zelle and banks implemented safeguards to protect customers. “Chase has used a fraud detection system to pause or block various kinds of transfers that have presented an elevated risk of fraud, including Zelle transfers,” the lawsuit notes.

Chase says that only 0.05% of its Zelle transactions last year were disputed because of fraud. It also says it displays warnings to customers to prevent scam transfers and a risk algorithm that estimates fraud potential and delays or stops payments if necessary, among other fraud protections. The lawsuit calls these “inadequate.”

The bureau says the banks committed an “unfair, deceptive, or abusive act” under the Consumer Financial Protection Act by marketing Zelle as “secure” even though scammers use it. But the security claim refers to the fact that Zelle can’t be easily hacked. Charlatans also use the U.S. Postal Service, social media, email and telecom networks.

No less than acting Comptroller of the Currency Michael Hsu noted in a recent speech that while banks have stepped up fraud protection, social-media platforms, email providers, telecom companies and law enforcement need to do more. Nearly 60% of scams originate on social media. Banks and bank regulators “cannot solve the problem on their own,” he said.

The CFPB nonetheless demands that Zelle and its bank owners compensate swindled customers, which the law doesn’t require. Under the Electronic Funds Transfer Act, banks must reimburse customers only for unauthorized transactions—i.e., when someone obtains access to a customers’s account or device and sends a transfer he didn’t approve.

But Mr. Chopra says banks must also reimburse customers for “induced fraud.” This will encourage more fraud. Customers will be less circumspect if they know banks are on the hook if they get conned. Scam artists could also exploit Mr. Chopra’s diktat by falsely claiming they were conned. Banks could have to reimburse the criminals.

The lawsuit follows a new CFPB rule that requires banks to share customer data with third parties upon a customer’s request. As we reported (“Jamie Dimon vs. Rohit Chopra”), the rule would let scammers initiate payments from customer accounts. Mr. Chopra’s Zelle lawsuit seeks to force banks to reimburse customers for fraud that will result from his own rule.

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All of this is further evidence of how Mr. Chopra is rewriting laws to advance an anti-business agenda and expand the bureau’s purview beyond even its vast remit under the Dodd-Frank Act. He shows why the agency—which Ms. Warren designed to be unaccountable to Congress—needs to be reined in.

Eliminating the bureau probably can’t be done by budget reconciliation, but former Rep. Jeb Hensarling has suggested directing the Federal Reserve to terminate the CFPB’s automatic funding. Unlike most agencies, the CFPB receives funding on demand from the Fed. Repealing this perk would subject the bureau to Congressional appropriations and oversight. Call it making government accountable again.

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Rohit Chopra, director of the Consumer Financial Protection Bureau, speaks at the White House in Washington, on March 5. PHOTO: ANDREW HARNIK/ASSOCIATED PRESS

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