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The Star
5 days ago
- Business
- The Star
New York sues Zelle, says security lapses led to $1 billion consumer fraud losses
FILE PHOTO: New York Attorney General Letitia James holds a press conference in the Manhattan borough of New York City, U.S., February 16, 2024. REUTERS/David Dee Delgado/File Photo NEW YORK (Reuters) -Zelle was sued on Wednesday by New York Attorney General Letitia James, who said the electronic payment platform's refusal to adopt critical safety features enabled fraudsters to steal more than $1 billion from consumers. The lawsuit in a New York state court in Manhattan followed the U.S. Consumer Financial Protection Bureau's decision in March to drop a similar case. That agency has ended most enforcement activity following U.S. President Donald Trump's return to the White House. Zelle was launched in 2017, and competes with apps such as PayPal's Venmo and Block's Cash App. Its parent, Early Warning Services, is owned by seven large U.S. banks: Bank of America, Capital One, JPMorgan Chase, PNC, Truist, US Bank and Wells Fargo. James said Zelle's parent and the banks knew for years that the platform was vulnerable to fraudsters but resisted basic safeguards, with the banks sometimes ignoring customer complaints while Zelle let fraudsters stay on the platform. The result was "rampant" fraud that Zelle sometimes refused to address even after it occurred, despite its assurances it was a safe alternative to cash and checks and "backed by the banks, so you know it's secure," the complaint said. In a statement, Zelle said scams start when criminals trick people into sending money, rather than on the platform itself, and holding it liable could lead to higher fees for consumers. Zelle also said more than 99.95% of transactions it handles are completed without reported fraud, leading the industry. "This lawsuit is a political stunt to generate press, not progress," Zelle said. "The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims." Early Warning Services is based in Scottsdale, Arizona. The seven banks were not named as defendants. PUPPY, UTILITY BILL SCAMS James said typical scams involved hacking into users' accounts and making unauthorized transfers, convincing users to send money for nonexistent goods and services, and impersonating banks, government offices and utilities. According to the complaint, one victim was told his electricity would be shut off unless he paid Con Edison $1,477 via Zelle, to an account named "Coned Billing." Another victim said Chase and Zelle wouldn't help him after he sent $2,600 in two installments via Zelle to buy a puppy, and realized he had been scammed when the purported seller demanded more money. James said it wasn't until 2023, after the CFPB and several members of Congress began probes, that Zelle adopted "basic" safeguards it had proposed four years earlier. While reported fraud losses plummeted, the safeguards were "too little too late" for consumers who had lost money, and despite those safeguards Zelle still facilitates "substantial fraudulent activity," the complaint said. "No one should be left to fend for themselves after falling victim to a scam," James said in a statement. The lawsuit seeks to require Zelle to beef up anti-fraud protections, and pay restitution and damages to defrauded New Yorkers. James sued Capital One in May for allegedly cheating savings depositors out of millions of dollars in interest, and in June settled claims against MoneyGram over remittance transfer lapses. The CFPB abandoned similar cases earlier in the year. (Reporting by Jonathan Stempel in New York; Editing by Lisa Shumaker)
CNN
5 days ago
- Business
- CNN
NY attorney general sues Zelle parent company, alleging the payment service enabled widespread fraud
Retail consumer Investing Federal agencies Corporate newsFacebookTweetLink Follow New York Attorney General Letitia James on Wednesday sued Early Warning Services (EWS), which operates Zelle, alleging the electronic money-transfer service fails to protect its users from 'massive amounts of fraud.' The lawsuit alleges that EWS knew that key features of Zelle's service made it susceptible to fraud, but it still failed to implement safety measures and allowed scammers to steal over $1 billion. EWS is owned by a consortium of large US banks, including JPMorgan Chase, Bank of America, Capital One and Wells Fargo. The lawsuit, filed in New York State Supreme Court, comes after the Consumer Financial Protection Bureau dropped a similar case against some of Zelle's backers in March, part of a broader pullback in enforcement under the Trump administration. 'No one should be left to fend for themselves after falling victim to a scam, and I look forward to getting justice for the New Yorkers who suffered because of Zelle's security failures,' James said in a statement. Zelle did not immediately respond to CNN's request for comment. EWS launched Zelle in 2017 as a competitor to popular payment apps like Venmo and Cash App. Zelle said its payment network had grown to 151 million users in 2024. The NY AG's lawsuit claims that in its rush to sign up new customers, Zelle allowed safety precautions to fall by the wayside. The lawsuit claims that scammers were able to sign up for Zelle through a quick registration process that lacked verification steps, allowing them to pose as businesses and government entities, tricking unsuspecting users into sending funds under false pretenses. Zelle's irreversible transfers also meant that many consumers were not able to get their money back after realizing they had been targeted in a scam, the NY AG claims. In one example cited in the lawsuit, a New York user was misled by a scammer into believing his home's electricity would be shut off if he didn't send money to Con Edison through Zelle. The New Yorker sent nearly $1,500 to a fraudulent account called 'Coned Billing.' By the time he realized it was a scam, his bank, JPMorgan Chase, told him they couldn't get his money back, the AG alleged. The lawsuit, which is partially redacted, alleges that EWS and its partner banks knew for years about Zelle's fraud problem but failed to take meaningful steps to fix the problem. The suit also said EWS failed to remove fraudsters from the Zelle network after receiving complaints and that EWS did not require banks to reimburse customers for certain scams. EWS began to adopt basic network safeguards in 2023, years after they were first proposed, which significantly curtailed fraud on the platform, the lawsuit says. In December, the CFPB sued EWS and three of its owner banks, Bank of America, JPMorgan Chase and Wells Fargo, for 'allowing fraud to fester.' Hundreds of thousands of consumers who filed fraud complaints about Zelle were largely denied assistance, according to the CFPB's lawsuit. Some victims of fraud were even told to contact the fraudsters directly to try to recover their money, the suit alleged. However, earlier this year, the CFPB dropped its suit against EWS, along with several other cases against companies that had been accused of hurting consumers. The dropped lawsuits come as the White House has made efforts to sideline the CFPB since President Donald Trump returned to office in January. The NY AG's lawsuit is seeking restitution and damages for New Yorkers affected by fraud on Zelle's platform, along with a court order mandating that Zelle adopts anti-fraud measures. CNN's Matt Egan contributed to reporting.
