New York takes Zelle to court for fraud on the platform, claims $ 1 billion lost

We can say that the whole point of sale of Zelle as a platform is that it belongs to large banks which are ostensibly invested to ensure that your money is safe. It turns out that security was not the priority you could imagine, according to the Attorney General of New York Letitia James. In legal action against the transfer of money, the main prosecutor of New York state claims that customers have lost more than a billion dollars for fraud on Zelle, which was reported by a lack of sufficient protections.

In the trial, James alleys that Zelle has not been insecure since its launch in 2017, and her parent company, Early Warning Services (which belongs to Bank of America, Capital One, Jpmorgan Chase, Wells Fargo and other large financial institutions), mainly ignored the problem. “EWS knew from the start that the main characteristics of the Zelle network made it particularly sensitive to fraud, and yet it failed to adopt basic guarantees to combat these flagrant defects or apply significant anti-fraud rules on its partner banks,” said the GA office in a press release.

As proof of this point, James stresses that Zelle did not include sufficient verification processes to confirm the users of their identity, which allows the crooks to train it easily. Because transactions on Zelle cannot be reversed, there is shocking little friction between transactions to prevent people from falling in love with impostors. The problem was so bad that the congress put pressure on Zelle in the reimbursement of victims of impostor scam in 2023 after learning that the users of the application had lost $ 440 million for such fraud that year. Not ideal for a platform that has actively announced as “safe”.

Another beef that James has with Zelle: he would not have responded to consumer complaints concerning fraud. “Even when EWS has received fraud reports, he failed to quickly remove fraudsters from the Zelle network or demand that banks reimburse consumers for certain scams,” said James, saying that when the application was launched, the parent company did not even force banks to report scams, which could have been preventing abuse on the level of the network.

The New York trial resumes where the Consumer financial protection office stopped. The agency announced that it was pursuing Jpmorgan Chase, Bank of America and Wells Fargo in December 2024, alleging similar accusations of fraud and non-proteger users. This case was abandoned almost immediately by the Trump administration, which staged the office and tried to close it entirely. Trump probably cannot close New York state, so this case should probably continue.