Attorney General Letitia James of New York filed a lawsuit against Zelle on Wednesday, claiming that the electronic payment platform’s failure to implement essential security measures allowed scammers to embezzle over $1 billion from customers.
The complaint was filed in Manhattan, New York, after the U.S. Consumer Financial Protection Bureau dismissed a related case in March.
Since U.S. President Donald Trump returned to the White House, that agency has ceased the majority of its enforcement operations.
Since its 2017 launch, Zelle has faced competition from apps like PayPal, Venmo, and Block’s Cash App.
Seven major U.S. banks—Bank of America, Capital One, JPMorgan Chase, PNC, Truist, US Bank, and Wells Fargo—own their parent company, Early Warning Services.
James claimed that although the banks and Zelle’s parent company had known for years that the platform was susceptible to fraud, they had resisted basic security measures, occasionally disregarding consumer complaints while Zelle allowed scammers to continue operating on the site.
Despite its claims that it was a secure substitute for cash and checks and that it was “backed by the banks, so you know it’s secure,” the complaint said that the outcome was “rampant” fraud that Zelle occasionally refused to remedy even after it had happened.
Scams begin when thieves deceive individuals into sending money, not on the platform itself, according to a statement from Zelle, and holding it accountable could result in greater fees for customers.
Additionally, Zelle said that it leads the industry in the percentage of transactions completed without detected fraud, at over 99.95%.
“This lawsuit is a political stunt to generate press, not progress,” Zelle stated.
“The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims.”
The headquarters of Early Warning Services are in Scottsdale, Arizona. The defendants did not include the seven banks.
Utility bill scams and puppies
James said common scams include hackers breaking into users’ accounts and transferring money without authorization, tricking people into sending money for goods and services that don’t exist, and posing as banks, government agencies, and utilities.
One victim allegedly received a warning that his electricity would be turned off until he paid Con Edison $1,477 through Zelle to an account called “Coned Billing.”
Another victim said that Chase and Zelle refused to assist him after he contributed $2,600 in two installments to purchase a puppy through Zelle and discovered that he had been duped when the alleged seller requested additional funds.
Zelle did not apply the “basic” measures it had suggested four years ago, according to James, until 2023, following the start of investigations by the CFPB and many members of Congress.
Zelle continues to enable “substantial fraudulent activity,” according to the complaint, even though documented fraud losses have drastically decreased.
The measures were “too little, too late” for users who had already lost money.
“No one should be left to fend for themselves after falling victim to a scam,” James said in a statement.
The lawsuit aims to compel Zelle to strengthen its anti-fraud safeguards and compensate New Yorkers for their losses.
In May, James filed a lawsuit against Capital One for allegedly defrauding savings depositors of millions of dollars in interest.
In June, he reached a settlement with MoneyGram about remittance transfer errors. Earlier in the year, the CFPB dropped instances of this nature.
