New York Files Lawsuit Against Zelle, Accusing Them of Fraudulent Practices and Demanding $1 Billion in Compensation for Losses Suffered
In a significant move, the New York Attorney General Letitia James has filed a lawsuit against Zelle, a popular peer-to-peer payment service, alleging that the platform's parent company, Early Warning Services (EWS), knowingly delayed implementing critical security measures to prevent fraud. This negligence, according to the lawsuit, allowed preventable consumer losses exceeding $1 billion during the four years of inaction.
The lawsuit claims that EWS had both the technology and knowledge to adopt basic, effective fraud protections but chose not to do so amid the platform’s rapid growth, prioritizing speed and user convenience over security. This decision resulted in systemic vulnerabilities that were exploited by fraudsters, causing vast financial harm to users and eroding trust in Zelle.
Industry experts and reports highlight that Zelle’s design inherently prioritized speed and ease of use, with real-time, unverified transfers contributing to its susceptibility to scams. Despite this, fraud recovery rates remain low (2–24%), aggravating consumer erosion of confidence.
The lawsuit is focused on the period from Zelle's launch in 2017 until the present. It alleges that key features of the Zelle network made it uniquely susceptible to fraud, and EWS failed to adopt basic safeguards or enforce anti-fraud rules. Transactions on Zelle can't be reversed, which contributes to the lack of friction that allows people to fall for impostors.
Notably, when the Zelle app launched, the parent company did not require banks to report scams, which theoretically could have prevented network-wide abuse. This lack of security is not consistent with Zelle's active advertising as a "safe" service.
The lawsuit filed by the New York Attorney General is likely to continue, as the Trump administration's attempt to shutter the Consumer Financial Protection Bureau was unsuccessful. The lawsuit seeks restitution for victims and greater regulatory oversight to prevent future failures.
Congress pressured Zelle into refunding victims of impostor scams in 2023, after users of the app lost $440 million to such fraud that year. The Consumer Financial Protection Bureau announced a lawsuit against JPMorgan Chase, Bank of America, and Wells Fargo in December 2024, alleging similar charges of fraud and failure to protect users. The lawsuit filed by New York's Attorney General against Zelle picks up where the Consumer Financial Protection Bureau left off.
The lawsuit alleges that Zelle did not include a sufficient verification process to make users confirm their identity, making it easy for scammers to spoof others. The AG's office states that this negligence resulted in hundreds of millions of dollars lost by New York consumers alone before improvements were made.
This lawsuit underscores the regulatory push to hold Zelle and its bank owners accountable for these lapses. The recent adoption of network safeguards has sharply reduced fraud since 2023, but prior negligence exposed millions to financial harm that arguably could have been prevented.
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