The CFPB Wants You To Pay For Mistakes Of Others

Authored by Jon Decker via RealClearMarkets.com,

Imagine receiving an email from a stranger offering you one hundred thousand dollars in a week if you send them ten thousand dollars today. Most of us would immediately recognize this as a scam and avoid it. However, what if you were guaranteed to get your initial ten thousand dollars back, even if it turned out to be a fraud? It seems obvious that removing such risk would encourage people to make reckless financial decisions – to everyone except President Biden’s Consumer Financial Protection Bureau (CFPB.) This is evidenced by their recent lawsuit against the fintech payment service Zelle.

The CFPB is suing Zelle arguing that it should be forced to reimburse anyone who unwittingly transfers their own money to a scammer. Its actions seem all the more disingenuous given that no federal law endorsed or approved by Congress saddles fintech payment processors with such liability — but progressives have long been trying to create one.

Now with a new administration incoming, CFPB Chair Rohit Chopra and his army of bureaucrats are making a final push to circumvent Congress and enact laws themselves to burnish their resumés before Trump cleans house. If Chopra’s policies are so beneficial or popular, why can’t they receive a vote in Congress? 

What the CFPB is asking Zelle to do is akin to forcing us to reimburse others for their online gambling losses. It presents a unique moral hazard by effectively making Zelle provide ‘scam insurance’ on its peer-to-peer platform where users directly self-authorize transactions. How could such platforms possibly ensure that any and every time its customers send money to another (at their behest) it’s not a scam? The notion that people should be able to irresponsibly send money – despite receiving warnings from the app, already in place – to an unvetted dubious recipient without consequences is one of the more wrongheaded ideas to have ever been floated when it comes to regulating our banks.

If the lawsuit succeeds, the results would be cruel to Zelle users. They would inevitably be asked to either foot the bill for the mistakes of others or even face de-banking where Zelle — or similar services like Venmo — are no longer available. Accounts deemed more at-risk would bear the brunt of this. There is reason to suggest ‘de-banking’ is actually the desired goal, given Sens. Bernie Sanders and Elizabeth Warren’s support for “postal banking, ” which would give the government more lending power at the expense of the productive private sector.

The Zelle lawsuit follows a worrisome pattern from Biden’s CFPB. Chairman Chopra also recently announced his new rule to cap overdraft fees, which would both reduce the availability of overdraft services and, more concerningly, increase the incentives for people to overdraft in the first place – a practice that prudent minds have long understood should be avoided. Taken together, the Biden administration is destabilizing parts of our financial sector in its final days, unfortunately adding to the Trump administration’s laundry list of policies that need to be cleaned up.

For Zelle’s customers, let’s hope they do so expeditiously.