New York Attorney General Letitia James has sued the payment app Zelle’s parent company, Early Warning Services, for failing to protect customers from fraud.
The Attorney General’s office alleges that Early Warning, which is owned by the seven largest banks, designed Zelle without critical safety features that allowed criminals to target bank customers and steal more than $1 billion from 2017 to 2023.
Early Warning “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 New York AG’s office said.
James is seeking restitution and damages for New Yorkers who have lost money to fraud, as well as a court order mandating that Early Warning maintain anti-fraud measures.
“No one should be left to fend for themselves after falling victim to a scam,” James said in a press release, adding that she wants “justice for the New Yorkers who suffered because of Zelle’s security failures.”
Early Warning, based in Scottsdale, Arizona, is owned by Bank of America, Capital One Financial, JPMorganChase, PNC Financial Services Group, Truist Financial, U.S. Bancorp, and Wells Fargo. Zelle logged
A Zelle spokesman called James’ lawsuit “a political stunt to generate press.”
“This is nothing more than a copycat of the Consumer Financial Protection Bureau lawsuit that was dismissed in March,” the spokesman said in an email. “The Attorney General wants to hand criminals a blueprint for guaranteed payouts with no consequences, opening the floodgates to more scams, not less. That’s bad policy and puts consumers at greater risk.”
Zelle also said the New York attorney general’s office did not conduct an investigation of Zelle.
“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,” the company spokesman said. “The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims.”
The New York attorney general’s office said that its investigation found that Early Warning “and its partner banks knew for years that fraud was spreading on Zelle and failed to take meaningful action to stop it.”
When the CFPB
The New York attorney general’s lawsuit notes that CFPB did not explain its dismissal of its suit, instead filing a one-page notice that got rid of the case before Early Warning had even answered the agency’s complaint.
James alleges that the largest banks “hastily” launched Zelle in 2017 to compete against Venmo, PayPal and Block’s Cash App, which are not controlled by banks. The lawsuit states that “in their rush to launch, EWS prioritized attracting new users through a simple registration process and quick transfers that left consumers vulnerable to scammers.”
“From its launch, the Zelle network has been teeming with fraudsters who have stolen staggering sums from consumers,” the lawsuit states. “EWS’s rush to market, however, came with a significant and foreseeable cost: EWS’s key design decisions made the Zelle network an obvious conduit for fraudulent activity.”
Some portions of the 37-page lawsuit are redacted. But the lawsuit is similar to the one filed by the CFPB, alleging that EWS’ rush to create Zelle led to serious failures in fraud prevention and customer protection.
Early Warning and the banks were slow to restrict and track criminals, and they did not share information about fraudulent transactions with other banks, allowing criminals to repeat the fraud at multiple banks, according to the suit.
“Zelle’s emphasis on immediate and irreversible transfers means that by the time consumers realize they have been targeted by fraudsters, their money is often already gone,” the attorney general’s office stated.
The most common scams involved fraudsters gaining access to a user’s accounts and making unauthorized transfers, and criminals convincing customers to send funds under false pretenses, sometimes by impersonating a bank or government employee.
The AG’s office described a common scam in which a fraudster calls a customer claiming to be an employee of an electrical utility and threatening to shut off service unless money is sent via Zelle. One New Yorker sent $1,476.89 and then realized the call was a scam, but was told by their bank that they couldn’t get the money back. The recipient’s Zelle account was named “Coned Billing” — an apparent effort to impersonate the New York-area utility known as Con Edison.
The NY AG also claimed that Early Warning developed basic anti-fraud safeguards in 2019 but failed to adopt them. Nonetheless, the company “aggressively marketed Zelle to New Yorkers, promising safety and security,” James claims.
The suit seeks a court order enjoining Early Warning from engaging in fraudulent practices; requiring the company to maintain basic network safeguards and other anti-fraud measures; ordering it to provide an accounting of all New York consumers who reported losses to the company or to its participating banks; and awarding restitution, disgorgement, and other relief.