Alleged $1B in scam losses spur NY attorney general lawsuit against Zelle operator

New York Attorney General Letitia James has sued the operator of payment platform Zelle, alleging it failed to protect users from fraud.

In a suit filed Wednesday, James claims Early Warning Services LLC designed the platform without “critical safety features,” allowing scammers to steal more than $1 billion from Zelle users between 2017 and 2023.

“EWS knew from the beginning that key features of the Zelle network made it uniquely susceptible to fraud, and yet it failed to adopt basic safeguards to address these glaring flaws or enforce any meaningful anti-fraud rules on its partner banks,” the attorney general’s office said in a news release.

An investigation by the attorney general’s office found that EWS and its partner banks knew of the fraud and failed to act, despite marketing that promised “safety and security” for users, according to the release. EWS is co-owned by some of the country's largest banks, including JPMorgan Chase, Bank of America, Capital One and Wells Fargo.

In an email to Newsday, a Zelle spokesman called the lawsuit “a political stunt to generate press, not progress.”

“The Attorney General wants to hand criminals a blueprint for guaranteed payouts with no consequences, open the floodgates to more scams, not less,” said spokesman Eric Blankenbaker.

Blankenbaker added: “Despite the Attorney General’s assertions, they did not conduct an investigation of Zelle. Had they conducted an investigation, they would have learned that more than 99.95% of all Zelle transactions are completed without any report of scam or fraud – which leads the industry.”

James alleges that the registration process to join Zelle lacked verification steps when the platform launched in 2017, requiring just a U.S. bank account linked to an email address or U.S.-based cellphone number.

Common scams, according to the attorney general’s office, include unauthorized money transfers after fraudsters gain access to accounts, convincing users to pay for goods or services that never arrive, and impersonating legitimate institutions such as banks or government agencies.

James’ suit seeks restitution and damages for affected New York residents, as well as a court order requiring Zelle to maintain anti-fraud measures.

A spokesperson for the attorney general’s office said Wednesday that no restitution amount has been set and that data on the number of Long Islanders and New York residents affected was not immediately available.

The federal Consumer Financial Protection Bureau abandoned a similar lawsuit, originally filed in December, after the Trump administration took over, according to the attorney general’s office.