Zelle facing lawsuit by New York for widespread fraud and billion-dollar losses
New York Attorney General Files Lawsuit Against Zelle Operator Over Fraud Allegations
The New York Attorney General (AG), Letitia James, has filed a lawsuit against Early Warning Services, LLC (EWS), the company behind the popular money transfer service Zelle. The lawsuit alleges significant security failures that have enabled widespread fraud, resulting in over $1 billion in losses from 2017 to 2023.
According to the lawsuit, Zelle was designed without critical safety features, such as adequate identity verification during registration. This oversight has allowed scammers to easily hijack accounts and trick users into transferring funds under false pretenses. EWS allegedly knew about these vulnerabilities but failed to implement basic anti-fraud protections or enforce meaningful rules on partner banks to prevent fraud.
The court-ordered protections sought by the AG in the lawsuit include requiring EWS to adopt and maintain basic network safeguards and any other necessary anti-fraud measures to protect users from scams. The AG also seeks an injunction against continuing the fraudulent practices linked to the platform’s design and operations. Moreover, the lawsuit seeks restitution and damages for New Yorkers affected by the fraud.
The lawsuit comes after a similar lawsuit filed by the Consumer Financial Protection Bureau (CFPB), which was later dropped. However, the AG’s case seeks to hold EWS accountable under New York state law and compel the company to implement stronger security protocols and transparency regarding fraud risks on the platform.
EWS has responded to the lawsuit, claiming it overstates the platform’s risks and does not acknowledge that scams originate with criminals outside the platform.
The lawsuit highlights several instances of fraud, including one where a New Yorker lost $1,476.89 to a Zelle scam, and their bank, JPMorgan Chase, refused to refund the loss.
The lawsuit alleges that EWS prioritized speed and user growth over security, resulting in a platform ripe for exploitation by scammers. It also claims that EWS failed to protect consumers from widespread fraud that cost users over $1 billion between 2017 and 2023.
The case against Zelle signals renewed pressure on fintech platforms to prioritize consumer safety or face legal consequences. The OAG says EWS knew of such scams from the start but failed to enforce its own minimal anti-fraud policies and did not require banks to report fraudulent transactions in a timely manner.
AG James stated that no one should be left to fend for themselves after falling victim to a scam and looks forward to getting justice for New Yorkers who suffered because of Zelle's security failures.
EWS is a company owned by major U.S. banks, including JPMorgan Chase, Bank of America, Capital One, and Wells Fargo. The federal lawsuit on the issue was dropped by the CFPB earlier this year, but New York's lawsuit seeks court-enforced reforms to mandate robust fraud protections.
If successful, the lawsuit could lead to significant changes in the way Zelle operates, with a focus on strengthening security measures to protect users from fraud.
- Despite substantial financial losses due to fraud amounting to over $1 billion from 2017 to 2023, Early Warning Services, the operator of Zelle, allegedly failed to prioritize technology designed for enhanced security and anti-fraud protection.
- In the general-news category, Attorneys General from both New York and the Consumer Financial Protection Bureau have filed lawsuits against Zelle's operator, Early Warning Services, over claims of insufficient business practices that have resulted in significant financial fraud.
