Zelle faces litigation for alleged inadequate protection against user fraud
The New York Attorney General, Letitia James, has filed a lawsuit against Early Warning Services (EWS), the operator of the electronic payment platform Zelle. The lawsuit alleges that EWS, owned by several of the largest US banks including JPMorgan Chase, Bank of America, Capital One, and Wells Fargo, has failed to protect consumers from widespread scams that have caused over $1 billion in losses between 2017 and 2023.
The lawsuit accuses EWS of operational and enforcement shortcomings that have allowed fraudsters to exploit the platform extensively. Key failures include the company's decision not to require participating banks to report fraud cases, the failure to promptly remove fraudulent accounts from the Zelle network, the ignoring of internal anti-fraud safeguards, the failure to enforce existing anti-fraud rules, and the design of Zelle without adequate security measures.
The Attorney General's investigation identified two broad categories of scams: unauthorized account access resulting in illicit transfers, and "authorized push payment" fraud, where users are tricked into sending money under false pretenses. The platform's operational failings allowed fraudsters to register with deceptive account names resembling legitimate businesses or government agencies, making it possible for them to run rampant on the platform.
Transfers on Zelle are immediate and generally irreversible, making it difficult for victims to recover lost funds. When reports of scams were made, EWS allegedly failed to remove fraudulent accounts promptly or oblige banks to reimburse affected customers.
The lawsuit seeks restitution and damages for affected New Yorkers, as well as a court order requiring Zelle to implement stronger anti-fraud measures. The Attorney General is asking the court to award restitution and damages to affected New Yorkers and to issue injunctions compelling EWS to implement anti-fraud measures and take other steps to protect customers.
Assistant Attorneys General Chris Filburn and Christian Reigstad of the New York Consumer Frauds and Protection Bureau, led by Bureau Chief Jane Azia and Deputy Bureau Chief Laura Levine, are handling the case. The case was lodged in the New York Supreme Court.
EWS promoted Zelle as a safe and secure service to consumers, but the platform's operational failings have allowed widespread fraud to occur. In the rush to launch, EWS prioritized speed and ease of registration over security, allowing anyone with a US bank account to enroll using an email address or mobile number with limited verification.
The lawsuit alleges violations of New York consumer protection laws through the creation of a payment platform "highly susceptible to fraud" and the marketing of the service as secure despite these vulnerabilities. The Attorney General's office is seeking to hold EWS accountable for its failure to protect consumers from fraud and to ensure that the company takes steps to prevent similar incidents from happening in the future.
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