(Photo Illustration by Nikolas Kokovlis/NurPhoto via Getty Images)
Zelle is under fire for allegedly failing to compensate users who’ve fallen for scams through the cash transfer app.
New York Attorney General Letitia James filed suit on Wednesday, alleging that Zelle’s lack of “critical safety features” helped scammers steal over $1 billion from US consumers.
The lawsuit targets Zelle’s parent Early Warning Services, LLC, which is owned by the top banks, including Wells Fargo, Capital One, and Bank of America. The company "knew for years that fraud was spreading on Zelle and failed to take meaningful action to stop it," James says.
“Even when EWS did receive reports of fraud, it failed to promptly remove the fraudsters from the Zelle network or require banks to reimburse consumers for certain scams,” she adds.
The US Consumer Financial Protection Bureau (CFPB) dropped a case against Zelle’s parent company in March after the Trump administration gutted the agency. James’s lawsuit will only seek restitution for New York residents whereas the CFPB could’ve secured relief nationwide. Still, James's complaint demands that the court force Zelle to mandate stricter anti-fraud measures and “disgorge all profits from the fraudulent practices alleged.”
The estimated $1 billion in losses occurred from 2017 to 2023 while Zelle was allegedly prioritizing user sign-ups over safety. EWS had created the app as a rival to Venmo and other mobile payment apps. But James notes that “scammers could sign up through a quick registration process that lacked important verification steps, allowing them to utilize misleading email addresses such as those associated with trusted businesses or government entities.”
“EWS does not require participating banks to display any information about a recipient, other than first name, to a Zelle user when transferring funds,” the complaint adds. “As a result, a Zelle user at risk to an ongoing fraud often lacks access to additional information that might enable them to avoid future losses, such as the recipient’s last name or how long the recipient has been using Zelle.”
The state is alleging EWS broke New York anti-fraud laws by turning a blind eye to the schemes for so long. Zelle didn’t immediately respond to a request for comment. But in December, the app called the CFPB’s early lawsuit “meritless.”
“Zelle reimburses customers for all instances of fraud as required by the law under the Electronic Funds Transfer Act and Reg E,” the app said at the time. “Zelle also goes above and beyond what is required by law and reimburses customers for certain types of scams where the customer authorized the transaction.”
UPDATE: Zelle sent PCMag the following statement:
"Zelle leads the fight to stop fraud and scams in America. This lawsuit is a political stunt to generate press, not progress. The Attorney General wants to hand criminals a blueprint for guaranteed payouts with no consequences, opening the floodgates to more scams, not less. That’s bad policy and puts consumers at greater risk. This is nothing more than a copycat of the Consumer Financial Protection Bureau lawsuit that was dismissed in March. 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 percent of all Zelle transactions are completed without any report of scam or fraud – which leads the industry. The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims.”
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