For the Consumer Financial Protection Bureau, it’s been an anything-but-quiet holiday season.
On Friday, the federal watchdog agency sued the organization that runs Zelle and three of America’s largest banks over their handling of fraud on the popular payment platform.
Monday brought two more major enforcement cases. In the first, the government’s lawyers accused Walmart of illegally forcing some of its gig workers to accept payment through costly, fee-laden deposit accounts operated by a fintech partner. Later, it unveiled a suit against the real estate company Rocket Homes, accusing it of paying kickbacks to brokers in its referral network so that they would steer clients to their sister lender, Rocket Mortgage.
The lawsuits are just the latest examples of how CFPB Director Rohit Chopra has opted to sprint ahead in the final days of the Biden administration with aggressive new actions that could potentially be reversed by President-elect Donald Trump’s appointees — effectively daring them to drop the efforts. Along with the flurry of lawsuits, the agency has finalized rules on overdraft fees and oversight of digital payment apps in recent weeks.
Trump is widely expected to replace Chopra, who has signaled that he will leave the agency if asked (he has also said he does not believe his agency should be a “dead fish” in the meantime). Whether the incoming administration chooses to continue these latest suits or retract them could be an early test of its approach to consumer protection enforcement and will be watched carefully by both pro-business groups and progressive activists.
If “these and other cases are dropped, it will be very clear why that has happened,” said Robert Weissman, the co-director of the left-wing consumer protection group Public Citizen. “The big corporations and big donors will be getting favors from the Trump administration that claims to be on the side of little people.”
Florida Bankers Association president Kathy Kraninger, who led the CFPB under Trump, called the flurry of suits “transparently political” given their timing.
“I would never say they can’t take enforcement actions during this transition time period,” she said. “But these are clearly cases they’ve been working on for a long time, and when they haven’t brought them sooner, it becomes clear it’s this political imperative, not about the case itself.”
A CFPB spokeswoman denied that political considerations influenced the timing of the lawsuits."When extensive, years-long CFPB investigations uncover wrongdoing, companies typically seek to resolve a matter through a fair and meaningful resolution," she said in a statement to Yahoo Finance. "But when entities think they can sweep their lawbreaking under the rug, law enforcement agencies have no choice but to proceed to a lawsuit."
Friday’s action involving Zelle follows years of consumer complaints about fraud on the country’s largest peer-to-peer payment app.
The case targets Early Warning Services, which runs the platform, along with Bank of America, Wells Fargo, and JPMorgan Chase, three of the seven banking giants that sit on its board. It alleges that the companies effectively allowed scams to run rampant on Zelle while brushing off customers who had been conned or had their accounts hijacked, often instructing them to work out the problems with law enforcement or even the scammers themselves. According to the CFPB, customers at the three banks lost $870 million over seven years.
Early Warning Services has called the case “meritless” while challenging the $870 million number and said that CFPB’s lawsuit is “simultaneously creating and enforcing entirely new legal requirements” for how financial institutions respond to fraud claims.
That point has been echoed by industry groups. In a statement to Yahoo Finance, Consumer Bankers Association president Lindsey Johnson accused the CFPB of trying to use its enforcement powers to effectively create new regulations at the last minute while leaning on “clever wordsmithing and salacious headlines.”
But progressive groups argue that the Zelle suit showed the value of the CFPB at a moment when Trump advisers such as billionaire Elon Musk have been talking about abolishing it.
“We quietly live in a golden age of financial fraud,” said Mark Hays, a senior policy analyst at Americans for Financial Reform. “Cases like these show that it’s really important to have at least one regulator in Washington whose role is to protect individual consumers.”
Firing shots at companies — and the next administration
Consumer Financial Protection Bureau (CFPB) director Rohit Chopra has said he does not believe his agency should be a “dead fish” in the final weeks of the Biden administration. (Kent Nishimura/Getty Images) ·Kent Nishimura via Getty Images
With its suit against Walmart, the CFPB is firing another last-minute salvo at a corporate behemoth. It claims the retailer required gig workers who took part in its Spark Drivers program, which handles last-mile deliveries, to agree to be paid via accounts managed by Branch Messenger. The suit claims the companies opened accounts without permission, using information like Social Security numbers they had collected.
According to the lawsuit, Walmart and Branch lied about how quickly workers could access their money through the accounts, which lacked basic functions like check writing and charged fees for quickly transferring out funds. The CFPB claims Branch “harvested more than $10 million in junk fees as a result” and that hundreds of thousands of dollars were deposited into accounts workers were never able to access.
In a statement, Walmart called the case “riddled with factual errors” and said the CFPB never gave it “a fair opportunity to present its case during their rushed investigation."
The Rocket Homes case may be less politically fraught; it accuses the company of engaging in a “kickback scheme that discouraged comparison shopping,” as Chopra put it, in which it gave real estate agents referrals if they encouraged buyers to use Rocket Mortgage. The company also allegedly required brokers to “preserve and protect” its customer relationships by nudging them away from other mortgage options. (Rocket Homes called the suit “flimsy” in a statement and noted that a large share of its customers opted for other lenders.)
While few expect the Trump administration to succeed at shuttering the agency, the Trump administration is generally anticipated to take a lighter approach to enforcement at the CFPB compared to the Biden administration. Trump’s first CFPB director, Mick Mulvaney, slowed new cases to a trickle while dropping some ongoing lawsuits and other enforcement efforts against payday lenders that had been initiated under his Obama-appointed predecessor, Richard Cordray. Kraninger took a somewhat different approach, filing a large number of cases but often seeking relatively small penalties.
Kraninger told Yahoo Finance that while Trump’s next appointee could certainly dismiss some of Chopra’s cases, it might not happen instantly.
“For anyone who cares about the law, you don’t want to willy-nilly bring back cases, and you don’t want to willy-nilly pull back cases,” she said. “So it takes time to review the cases, and there’s the public explanation.”
Still, conservative groups are already urging Trump to wind back the CFPB’s recent efforts.
“I can’t speak to the merits of every lawsuit, they’re filing them so fast,” said John Berlau, director of finance policy at the Competitive Enterprise Institute. “[But] when the Trump administration has their person in, on day one, they should root out and review bad regulations, of which there are many, but also the meritless and harmful enforcement actions the previous administration pursued.”
Jordan Weissmann is a senior reporter at Yahoo Finance.
