New York sues Zelle, alleging lack of safeguards against fraud
New York Attorney Letitia James alleged that Early Warning Services, a financial technology company owned by the nation's largest banks, hastily launched Zelle to compete with emerging payment platforms, like Venmo and PayPal.
As a result, she argues, Zelle offered more limited security protocols and made the network 'an obvious conduit for fraudulent activity.'
Despite an initial effort in 2019, the company did not implement additional safeguards until 2023, resulting in more than $1 billion in losses, according to Wednesday's complaint.
'No one should be left to fend for themselves after falling victim to a scam,' James said in a statement. 'I look forward to getting justice for the New Yorkers who suffered because of Zelle's security failures.'
The New York attorney general is asking the court to order Zelle to maintain certain safeguards and antifraud measures, as well as to account for and compensate New York consumers who reported losses.
The Empire State's lawsuit comes after the Consumer Financial Protection Bureau dropped its case against the company in March.
Zelle pushed back on the allegations, calling the lawsuit a 'political stunt to generate press, not progress.' It contends that more than 99.95 percent of transactions on the platform are completed without scam or fraud reports.
'The Attorney General wants to hand criminals a blueprint for guaranteed payouts with no consequences, opening the floodgates to more scams, not less,' a Zelle spokesperson said in a statement. 'That's bad policy and puts consumers at greater risk.'
'This is nothing more than a copycat of the Consumer Financial Protection Bureau lawsuit that was dismissed in March,' they continued, adding, 'The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims.'
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