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New York Attorney General Letitia James is suing the owners and operators of electronic payment platform Zelle, alleging the company allowed scams and security lapses to cost consumers over $1 billion. Zelle’s parent company, Early Warning Services (EWS), is owned by Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank, and Wells Fargo, seven of the largest banks in the United States.
Zelle blamed for allowing widespread fraud
Attorney General James said in a press release announcing the lawsuit that Early Warning Services failed “to protect its users from massive amounts of fraud.” She claims consumers lost more than $1 billion while the Zelle operator, controlled by those major banks, “knew the platform was vulnerable to scammers.”
“An investigation by the Office of the Attorney General (OAG) revealed that EWS designed Zelle without critical safety features, allowing scammers to easily target users and steal over $1 billion between 2017 and 2023. EWS knew from the beginning that key features of the Zelle network made it uniquely susceptible to fraud, and yet it failed to adopt basic safeguards to address these glaring flaws or enforce any meaningful anti-fraud rules on its partner banks,” the statement reads.
The New York Attorney General also claims that scammers targeted Zelle because it had a “registration process that lacked important verification steps allowing them to utilize misleading email addresses such as those associated with trusted businesses or government entities.” She added that due to Zelle’s “emphasis on immediate and irreversible transfers,” by the time consumers realized they had been scammed, their money was often irretrievable. The ease with which scammers were able to abuse Zelle meant that the electronic payment platform “became a hub for fraudulent activity.”
The OAG’s investigation revealed that EWS and its partner banks knew for years that fraud was spreading on Zelle and failed to take meaningful action to stop it. When participating banks received complaints from Zelle users about fraud, EWS allowed banks to report that fraud to EWS long after it occurred, which enabled bad actors to scam additional consumers. In fact, when Zelle launched, EWS did not require participating banks to report scams like the “Coned Billing” scheme in which fraudsters convinced users to send funds under false pretenses. Even when EWS did receive reports of fraud, it failed to promptly remove the fraudsters from the Zelle network or require banks to reimburse consumers for certain scams. EWS developed basic safeguards to address these issues as early as 2019, but failed to adopt them. EWS failed to meaningfully enforce even the limited, inadequate anti-fraud rules that it did have in place against participating banks despite knowing of widespread violations of those rules.
EWS and Zelle respond
According to Business Times, a Zelle spokesperson called the lawsuit a “political stunt to generate press,” adding, “Had they conducted an investigation, they would have learned that more than 99.95 percent of all Zelle transactions are completed without any report of scam or fraud – which leads the industry.”
A similar lawsuit against EWS and Zelle was filed in December 2024 by the Consumer Financial Protection Bureau. It was later dropped shortly after President Donald Trump took office and fired the head of the bureau.