New York Sues Zelle—What To Know About Alleged $1 Billion Scams Over The App

Forbes

a day ago

New York Attorney General Letitia James announced a lawsuit against the company that developed Zelle, the online payment app used by several major banks that allows users to quickly transfer funds to one another, alleging that fraudsters stole a total of $1 billion from consumers because developers failed to implement security features.
New York Attorney General Letitia James' office picked up the lawsuit after the Consumer Financial Protection Bureau dropped a similar one in March. Getty Images
The lawsuit was brought against Early Warning Services, LLC, a company owned by seven major banks: Bank of America, Capital One, JPMorgan Chase, PNC Bank, Truist Bank, Wells Fargo, and U.S. Bank, who were not named as defendants in the lawsuit.
The company developed an electronic payment app to compete with the growing dominance of PayPal and Venmo, but James' office claims they 'rush[ed]' the app to market with features that made it easy for fraudsters to take advantage of users.
Zelle's 'quick registration process and lack of verification' made it easy for fraudsters to sign up, and 'limited information displayed to consumers who send money' enabled them to trick users, the complaint alleges.
James' office also claimed that the company was aware of rampant fraud on the app, but 'failed to take meaningful action to stop it.'
The attorney general's office is seeking "restitution and damages' for New Yorkers impacted and a court order mandating the company implement 'anti-fraud measures necessary to protect its users.'
James's lawsuit mirrors a similar lawsuit brought by the Consumer Financial Protection Bureau in December, but the agency dropped the case after the Trump administration moved to shut down the agency's work in February.
In a statement provided to Forbes, Eric Blankenship, a spokesperson for Zelle, called the lawsuit a 'political stunt to generate press.'
Zelle said the New York suit is 'nothing more than a copycat of the Consumer Financial Protection Bureau lawsuit that was dismissed in March' and claimed that the attorney general's office did not conduct a full investigation into the company. '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,' Blankenship said in a statement for the company. How Does The Ag's Office Say Scammers Use Zelle?
The complaint filed by James's office identifies two common types of fraud seen on Zelle. The first is what they call 'takeover fraud,' which happens when a fraudster obtains improper access to an account (through hacking, obtaining security info, or taking over a mobile device with access to a banking app) and quickly transfers money out to an account they control. The other common type is 'induced fraud'—when a scammer convinces a user to transfer money to an account under false pretenses. In one example given in the complaint, a scammer pretended to be a ConEdison employee notifying a victim of a fraudulent shutoff notice. The victim then transferred $1,476.89 to a Zelle account with the name 'Coned Billing.' They were later told by their bank that they 'can't get me that money back,' the complaint alleges.
This is the second time James's office has announced legal action against a company that was previously facing a CFPB lawsuit before it was dropped since the start of President Donald Trump's second term. The CFPB was created by the Dodd-Frank Act in the aftermath of the 2008 financial crisis. Russell Vought, the Trump-appointed director of the Office of Management and Budget, took over as acting director of the bureau in February, reportedly halting work and dismissing ongoing lawsuits. The New York attorney general's office announced a suit against Capital One in May, alleging the bank took advantage of customers who thought its 360 Savings accounts offered higher interest rates. The bank has denied these allegations. James's office also secured a settlement with MoneyGram, with the payment company agreeing to pay a $250,000 fine in exchange to settle a lawsuit her office filed in 2022. The CFPB dropped a similar lawsuit against the company in April.