New York Sues Zelle, Alleging $1 Billion in Fraud Since 2017

Zelle operator Early Warning Services is being sued by New York State Attorney General Letitia James, who alleged that the company fails to protect its users from “massive amounts of fraud.”

The Office of the New York State Attorney General said in a Wednesday (Aug. 13) press release that its investigation found that Early Warning Services designed Zelle without critical safety features and that scammers stole over $1 billion from Zelle users between 2017 and 2023.

The lawsuit seeks restitution and damages for New Yorkers and a court order requiring Zelle to maintain “anti-fraud measures necessary to protect its users.”

“No one should be left to fend for themselves after falling victim to a scam,” James said in the release. “I look forward to getting justice for the New Yorkers who suffered because of Zelle’s security failures.”

Reached by PYMNTS, a Zelle spokesperson said in an email that the company “leads the fight to stop fraud and scams in America.”

“This lawsuit is a political stunt to generate press, not progress,” the spokesperson said. “The Attorney General wants to hand criminals a blueprint for guaranteed payouts with no consequences, opening the floodgates to more scams, not less.”

The Zelle spokesperson also said the lawsuit is a “copycat” of a U.S. Consumer Financial Protection Bureau (CFPB) lawsuit that was dismissed in March.

“Despite the Attorney General’s assertions, they did not conduct an investigation of Zelle,” the spokesperson said. “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.”

It was reported March 4 that the CFPB dropped its lawsuit targeting Early Warning Services and the three owner banks of Zelle — JPMorgan Chase, Bank of America and Wells Fargo —  “with prejudice.”

The CFPB had sued the four defendants on Dec. 20, alleging that they violated consumer protection laws by failing to guard against “widespread fraud” on the peer-to-peer payments (P2P) network.

Zelle said at the time that the regulator’s complaint was legally and factually flawed and that the company would defend the “meritless lawsuit.”