The Attorney General of New York is picking up where the Consumer Financial Protection Bureau left off, filing a lawsuit yesterday against the owner of the Zelle payment platform, alleging it knew its platform was susceptible to fraudsters who bilked consumers out of more than $1 billion.
The case targets Early Warning Services (EWS), the bank-owned operator of Zelle, and alleges years of inaction despite knowing the platform’s design flaws enabled large-scale scams. For the credit and collection industry, the lawsuit highlights the growing state-level scrutiny they are facing. The CFPB filed suit against Zelle last December, and then dismissed the suit in March.
- EWS allegedly rolled out Zelle in 2017 to compete with Venmo, PayPal, and Cash App, prioritizing speed and simplicity over security. The AG’s lawsuit says Zelle’s quick sign-up, minimal verification, and instant, irreversible transfers created “an atmosphere conducive to fraud.”
- As early as 2019, EWS identified “basic network safeguards” that could block or quickly remove fraudsters, but allegedly failed to implement them for nearly four years during which scammers stole hundreds of millions from New Yorkers.
- Marketing promised that Zelle was “safe” and “backed by the banks,” even as fraud ran rampant. The lawsuit says these assurances were deceptive, given EWS’s knowledge of widespread scams and its refusal to require reimbursement for certain fraud losses.
The complaint details scams where victims:
- Paid fake utility bills to accounts named “Coned Billing.”
- Bought non-existent puppies from fraudulent sellers.
- Were tricked by impostors posing as bank representatives to “reverse” phony transactions.
In each case, consumers were told by their banks, which include major Zelle owner-banks like JPMorgan Chase, that they couldn’t recover their money.
In 2023, after pressure from Congress and the CFPB, EWS finally implemented the anti-fraud measures it had drafted in 2019. Reported fraud losses dropped by hundreds of millions, even as Zelle transactions increased by nearly $200 billion. This underscores the AG’s claim that earlier action could have prevented massive consumer harm.
The suit is seeking:
- Restitution and damages for affected New Yorkers.
- Disgorgement of profits earned during the period of alleged misconduct.
- Court orders requiring EWS to maintain effective anti-fraud safeguards going forward.
