N.Y. AG Letitia James sues parent company of Zelle for allowing fraud
Aug. 13 (UPI) -- New York Attorney General Letitia James filed suit Wednesday against the parent company of Zelle, a bank transfer app, for "failing to protect its users from massive amounts of fraud," a press release said.
An investigation by the Office of the Attorney General revealed that parent company Early Warning Services designed Zelle without critical safety features, allowing scammers to target users and steal more than $1 billion between 2017 and 2023, the release said.
"No one should be left to fend for themselves after falling victim to a scam," James said in the statement. "I look forward to getting justice for the New Yorkers who suffered because of Zelle's security failures."
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 press release alleged.
The Consumer Financial Protection Bureau filed a similar suit in December 2024, but it was dropped after the President Donald Trump administration took power.
James seeks restitution for damages for affected New Yorkers and a court order mandating that Zelle maintain anti-fraud measures.
The app is partially owned by Bank of America, JPMorgan Chase, Capital One and Wells Fargo, and it was launched in 2017 to compete with other payment apps like Venmo or CashApp, which are not owned by banks.
James alleges that those banks tasked EWS with hastily launching an electronic payment platform. In their rush to launch, EWS prioritized attracting new users through a simple registration process and quick transfers that left consumers vulnerable to scammers.
James' complaint alleges:
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 got complaints from Zelle users about fraud, EWS allowed banks to report that fraud to EWS long after it happened, which enabled bad actors to scam more consumers.
When Zelle launched, EWS did not require banks to report scams.
When EWS did get reports of fraud, it failed to promptly remove the fraudsters from the Zelle network or require banks to reimburse consumers for 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 anti-fraud rules that it did have in place against banks despite knowing of widespread violations of those rules.
In one example James' department explained, a New York user received a call from someone impersonating a Con Edison employee saying that the consumer was delinquent on his energy bills and that his "electricity was going to be shut off that day" unless he paid Con Edison via Zelle. The fraudster identified "Coned Billing" as the name associated with the account. The consumer transferred $1,476.89 to a Zelle account named "Coned Billing," but after realizing the call was a scam, was told by their bank, JPMorgan Chase, that the bank "can't get [him] that money back."
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