New York Attorney General Letitia James filed suit Wednesday against Early Warning Services, the operator of the Zelle payment network, alleging the platform's design flaws enabled scammers to steal more than $1 billion from consumers between 2017 and 2023.
The lawsuit, filed in New York state court in Manhattan, claims Zelle lacked "critical safety features" and allowed fraudulent activity to flourish because its registration process lacked verification steps. James' office said the company and its partner banks "knew for years" about the vulnerabilities but failed to act.
"EWS 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," James said in a statement. "No one should be left to fend for themselves after falling victim to a scam."
James is seeking restitution, damages, and a court order requiring Zelle to implement enhanced anti-fraud protections. The complaint follows a similar lawsuit filed by the Consumer Financial Protection Bureau last December against EWS and major banks, including JPMorgan Chase, Bank of America, and Wells Fargo, which was later dropped in March.
A Zelle spokesperson rejected the allegations, calling the lawsuit a "political stunt to generate press" and a "copycat" of the CFPB's abandoned case. "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," the spokesperson said.
EWS, based in Scottsdale, Ariz., is owned by seven U.S. banks: Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank, and Wells Fargo. None were named as defendants in the New York case.
According to the complaint, common scams included criminals impersonating banks, government agencies, and utilities, as well as fake sales of goods and services. In one case, a victim was told his electricity would be shut off unless he paid $1,477 via Zelle to an account labeled "Coned Billing." Another victim reported sending $2,600 to buy a puppy, only to be asked for more money by the purported seller.
The suit alleges Zelle only began implementing basic safeguards in 2023, four years after first proposing them, and only after pressure from Congress and the CFPB. While reported fraud losses fell after the changes, James' office said they were "too little too late" for consumers who had already suffered losses.
