New York’s attorney general has filed a lawsuit against Early Warning Services, the operator of the bank-backed P2P payments service Zelle, for not adequately protecting users from significant fraud.
Attorney General Letitia James alleges that Early Warning Services, owned by major American banks, designed Zelle without essential safety features, allowing scammers to exploit users and steal over $1 billion from 2017 to 2023. The AG’s office stated, “EWS knew that key features of the Zelle network made it uniquely susceptible to fraud, yet failed to implement basic safeguards or enforce meaningful anti-fraud rules on its partner banks.”
Launched in 2017, Zelle has gained immense popularity, boasting over 150 million enrolled users who sent more than $1 trillion through the platform last year. However, it has faced scrutiny, with Senate Democrats, including Elizabeth Warren, urging financial regulators to address fraud on the platform.
Last year, the Consumer Financial Protection Bureau (CFPB) took action by filing a lawsuit against Early Warning and banks like JPMorgan Chase, Bank of America, and Wells Fargo for allowing fraud to “fester” on Zelle. However, in March, the CFPB withdrew the suit amid a broader pullback under new leadership.
In her lawsuit, AG James claims that EWS violated New York law by creating a fraud-prone payment platform while misleading consumers about its safety. She seeks restitution and damages for affected New Yorkers, as well as court orders requiring EWS to implement necessary anti-fraud measures.
In response, an EWS spokesperson stated, “This lawsuit merely replicates the CFPB lawsuit that was dismissed in March. If the Attorney General had conducted a proper investigation, they would have found that over 99.95 percent of Zelle transactions are completed without any report of scam or fraud, which is a leading statistic in the industry. The Attorney General should focus on facts and tackling criminal activity, rather than making unfounded claims.”