NY AG picks up Zelle fraud case feds dropped

The Office of the New York State Attorney General (OAG) filed a lawsuit against Early Warning Services LLC, the company behind the bank-controlled peer-to-peer payment network Zelle. The OAG alleges that EWS failed to protect users from being pilloried by massive amounts of fraud: more than $1billion between 2017 and 2023.

The OAG said its investigation revealed that EWS designed Zelle without critical safety features, allowing scammers to easily target consumers. EWS knew from the get to that key features of the network made it uniquely susceptible to fraud, yet failed to adopt basic safeguards to address these glaring flaws or enforce any meaningful anti-fraud rules on its partner banks, the OAG stated.

The most common scams involved fraudsters gaining access to users' accounts and making unauthorized transfers, and scammers convincing users to send funds under false pretenses, for example by offering nonexistent goods or services or by impersonating a trusted institution like a bank or government office.

When participating banks received complaints from Zelle users about fraud, the lawsuit alleges, EWS allowed banks to report that fraud to EWS long after it occurred, which enabled bad actors to scam additional consumers.

Only fraud committed against New Yorkers covered

The lawsuit, filed in state court, mirrors closely a case the Consumer Financial Protection Bureau brought against Zelle in December 2024, but which was dropped the following March. The New York lawsuit seeks restitution for impacted consumers. Unlike the CFPB lawsuit, however, the OAG is going after EWS, which is owned by several of the largest banks in the country, only for losses incurred by New York residents. It is also requesting a court order mandating Zelle maintain anti-fraud measures necessary to protect users.

"No one should be left to fend for themselves after falling victim to a scam," said Attorney General Letitia James. "I look forward to getting justice for the New Yorkers who suffered because of Zelle's security failures."

EWS is a financial technology company controlled by many of the nation's largest banks, including JPMorgan Chase, Bank of America, Capital One and Wells Fargo. The network was "hastily" launched the in 2017, the lawsuit states, to compete with non-bank P2P payment networks like PayPal, Venmo and Cash App.

The lawsuit also alleges that EWA prioritized attracting new Zelle users through a simple registration process and quick transfers. Anyone with a U.S. bank account could enroll to send or receive near instantaneous money transfers linked to an email address or mobile number.

Scammers would take advantage of the quick signup process that lacked important verification steps, the OAG said, using misleading email addresses such as those associated with trusted businesses or government entities.

Because all transfers were immediate and irreversible, by the time consumers realized they had been scammed the money was gone. This made Zelle a "hub" for fraudulent activity, the OAG asserted. This despite assertions by EWS that the network was safe.

EWS aggressively marketed Zelle to New Yorkers, promising safety and security, the OAG noted. However, EWS's failures enabled fraudsters to run rampant on the Zelle network, leading to millions of dollars in losses for New Yorkers, and even though it had developed basic safeguards in 2019, it failed to adopt them, the OAG asserted.

EWS characterizes lawsuit as 'political stunt'

EWS, in statement, refuted the OAG's allegations, characterizing the lawsuit as "a political stunt to generate press, not progress."

The company went on to state that "Zelle leads the fight to stop fraud and scams in America." The Attorney General, EWS asserted, "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."

EWS further asserted that the OAG did not conduct an independent investigation of Zelle, but rather ran with the allegations asserted in the CFPB's abandoned lawsuit.

"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," EWS wrote. "The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims."

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