NY Attorney General Sues Zelle Over Alleged $1 Billion Fraud, Citing ‘Shoddy Security’

New York Attorney General Letitia James has launched a lawsuit against the consortium of banks operating Zelle, alleging that the digital payment platform’s lax security measures facilitated over $1 billion in customer fraud between 2017 and 2023. The lawsuit claims that Zelle, managed by Early Warning Services (EWS) and owned by major financial institutions like Bank of America, JPMorgan Chase, and Wells Fargo, was hastily launched with inherent design flaws that made it an “obvious conduit for fraudulent activity.”

According to James, EWS was aware of the network’s vulnerabilities from its inception but failed to implement crucial safeguards. Specific allegations include a registration process that lacked vital verification steps, enabling scammers to easily create misleading accounts to impersonate government officials or businesses. The lawsuit also asserts that EWS did not ensure banks promptly reported customer fraud complaints and falsely advertised Zelle as a secure money transfer tool. Despite receiving fraud reports, EWS allegedly failed to remove fraudsters swiftly or mandate banks to reimburse victims for certain scams.

In response, Zelle spokesperson Eric Blankenbaker vehemently denied the accusations, stating that Zelle is at the forefront of combating fraud and scams in the U.S. Blankenbaker dismissed the lawsuit as a “political stunt” that could paradoxically empower criminals by providing a “blueprint for guaranteed payouts,” thereby increasing consumer risk.

Attorney General James is seeking restitution and damages for all New Yorkers impacted by Zelle’s alleged security deficiencies, vowing to secure justice for those who suffered financial losses.

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