New York sues Zelle for scams and security issues causing $1 billion in losses

New York sues Zelle, owned by major banks, for enabling fraud that lost consumers $1 billion.

: Zelle faces a lawsuit from New York Attorney General Letitia James, accusing the platform of security inadequacies that enabled scammers to steal over $1 billion from consumers. Early Warning Services, LLC, Zelle's parent company, is owned by top U.S. banks such as Bank of America, JPMorgan Chase, and Wells Fargo. Despite marketing Zelle as a safe transaction method, the platform has been criticized for lacking essential fraud safeguards, leading to rampant fraudulent activities. New York's legal action seeks to enhance Zelle's anti-fraud mechanisms and provide restitution to affected consumers.

New York Attorney General Letitia James has filed a lawsuit against Early Warning Services (EWS), the parent company of the Zelle payment platform, alleging it failed to implement adequate security measures. The suit claims these lapses enabled scammers to steal over $1 billion from users between 2017 and 2023. The legal action emphasizes that Zelle, owned by major U.S. banks including JPMorgan Chase and Bank of America, prioritized rapid market deployment over user safety, leaving consumers exposed to rampant fraud.

The lawsuit describes how Zelle’s design lacked essential safeguards, such as strong identity verification and transaction alerts, which allowed criminals to impersonate utility companies, banks, and government agencies. One case cited involves a scammer pretending to be from Con Edison who tricked a New York consumer into sending nearly $1,500 via Zelle. When the fraud was discovered, the victim's bank refused to reimburse the loss, showcasing the limited recourse available to victims under Zelle’s current framework.

This isn’t the first time EWS has faced legal scrutiny. In late 2024, the Consumer Financial Protection Bureau (CFPB) initiated a similar case against EWS and participating banks, but the suit was dropped in early 2025 amid federal regulatory shifts. The New York lawsuit revives those concerns at the state level, seeking restitution for affected users, penalties for negligence, and mandatory reforms to improve fraud prevention.

Zelle and EWS have denied the allegations, asserting that the vast majority of transactions are secure and that the lawsuit is politically motivated. They argue that over 99.95% of Zelle payments are completed without any fraud and accuse the Attorney General’s office of recycling previously dismissed claims for publicity purposes rather than aiming for meaningful improvements.

The outcome of the lawsuit could have wide-ranging implications for digital payment platforms and consumer protection laws. If successful, it may push for tighter regulation of peer-to-peer payment systems and force companies like Zelle to implement stricter security protocols and clearer user protections moving forward.

Sources: Reuters, The Verge, Wall Street Journal

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