For Whom the Zelle Tolls

Stephen Moore on Mar 4, 2025

One of the more baffling lawsuits in the final days of the Biden administration was the complaint against Zelle, the popular money transfer network. The Consumer Finance Protection Bureau argued that, despite Zelle's service being free, the network's users were being ripped off.

Now that the Trump administration has all but closed the CFPB down, this is the first of many lingering lawsuits that should be tossed out.

In its short, inglorious history, the CFPB harassed businesses with hundreds of millions of dollars of frivolous complaints that enriched trial lawyers, while doing nothing of consequence to actually help consumers.

If the CFPB had really wanted to "protect" consumers, the agency would have sued the Biden administration for unleashing a 21% four-year inflation with its wild spending spree. But that never happened.

Why the CFPB and its former director Rohit Chopra want to strangle Zelle with red tape and lawsuits remains a mystery.

Zelle provides a money transfer program mostly run through banks. Users pay next to nothing for the service. Yet the government is looking this gift horse in the mouth.

The complaint against Zelle is that the service doesn't do enough to root out internet fraudsters. These are mostly foreign fraud cartels that prey on unsuspecting clients throughout the world.

But Zelle is not an antifraud police force. The entire concept of the service is that you pay nothing for the money transfer, but you also bear the risk of fraud. Zelle does some due diligence checks and gives warnings, but if you want full fraud protection, you pay for it by using other money transfer companies.

Zelle already reimburses consumers for fraudulent transactions more generously than required by law. If the CFPB suit were to succeed, the result would be higher fees for consumers, community banks and credit unions.

In other words, the very people the CFPB is supposed to protect would be the victims here. If the service is harmful to customers, then why is it so wildly popular with American consumers and small businesses? Not only do nearly half of adults use its services, but so do 2,000 financial institutions.

The people who have benefited most from the infrastructure for electronic transactions are low-income Americans who are unbanked or underbanked.

Zelle's record on rooting out fraud is exemplary. Some 99.95% of its payments are sent without a report of scams. Moreover, fraud rates in the banking sector, including online and card payment fraud, are not disproportionately lower than those associated with peer-to-peer systems like Zelle.

If the government wins this fight with Zelle, the users will pay more. That hardly sounds like a way to "protect" consumers.

========

Stephen Moore is a visiting fellow at the Heritage Foundation. He is also an economic advisor to the Trump campaign. His new book, coauthored with Arthur Laffer, is "The Trump Economic Miracle."