Zelle faces New York lawsuit over $1 billion in alleged consumer fraud

Canada News.Net

a day ago

NEW YORK CITY: New York Attorney General Letitia James has filed a lawsuit against Zelle, accusing the digital payment platform of failing to implement essential security measures that she says allowed scammers to steal more than US$1 billion from consumers.
Filed in New York state court in Manhattan, the case follows the U.S. Consumer Financial Protection Bureau's decision in March to drop a similar action. The CFPB, like other federal enforcement agencies, has scaled back most consumer protection efforts since President Donald Trump returned to the White House.
Zelle, launched in 2017 and owned by Early Warning Services, a consortium of seven major U.S. banks, competes with PayPal's Venmo and Block's Cash App. The suit alleges Zelle's parent company and its bank owners knew the platform was vulnerable for years. However, they resisted adopting basic safeguards, sometimes ignoring customer complaints and allowing fraudsters to remain active.
According to the complaint, Zelle promoted itself as a safe alternative to cash and checks, "backed by the banks, so you know it's secure," while fraud was "rampant" and often went unaddressed.
Zelle disputes the allegations, saying scams occur when criminals trick people into sending money, not because of flaws in its systems. The company said over 99.95 percent of transactions are completed without reported fraud and called the lawsuit "a political stunt to generate press, not progress."
The seven banks that own Early Warning Services — Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank, and Wells Fargo — were not named as defendants.
James detailed common scams involving hacked accounts, fake goods or services, and impostors posing as banks, government agencies, or utilities. In one case, a victim was told his electricity would be shut off unless he paid $1,477 via Zelle to an account labeled "Coned Billing." Another sent $2,600 for a puppy, only to be asked for more money and realize the seller was fictitious; Chase and Zelle declined to reimburse him.
The complaint alleges Zelle didn't adopt "basic" fraud-prevention measures it had identified in 2019 until 2023, after probes by the CFPB and Congress. While fraud reports fell after the changes, James says the protections came "too little, too late" and that substantial fraudulent activity persists.
"No one should be left to fend for themselves after falling victim to a scam," James said, seeking stronger anti-fraud systems, restitution, and damages for New Yorkers.
The lawsuit is the latest in a string of actions by James against major financial firms. In May, she sued Capital One over alleged interest payment violations, and in June, she settled claims against MoneyGram for remittance transfer failures.