New York Attorney General Letitia James today has sued Early Warning Services (EWS), the creators of Zelle, for failing to protect its users from fraud.
EWS was tasked with creating an electronic payment platform, Zelle, by the banks which owned and controlled the company. These banks include JPMorgan Chase, Bank of America, Capital One and Wells Fargo.
When Zelle was created in 2017, anyone with a U.S. bank account could enroll in Zelle to send or receive money transfers through email addresses and phone numbers. Scammers would sign up through the registration process which lacked verification steps, and created fake email addresses to pose as trusted businesses or government entities.
Zelle users were targeted by scammers which resulted in over $1 billion being stolen. The transfers made through Zelle are irreversible. An investigation by the Office of the Attorney General revealed that EWS designed Zelle without critical safety features, which allowed the scamming to occur.
James claims that EWS knew that features specific to Zelle made it susceptible to fraud, yet did not adopt safeguards to enforce any anti-fraud rules. An investigation by the Office of the Attorney General (OAG) revealed that EWS designed Zelle without critical safety features. James is seeking restitution and damages for affected New Yorkers along with a court order mandating Zelle to create necessary anti-fraud measures.
“No one should be left to fend for themselves after falling victim to a scam,” said James. “I look forward to getting justice for the New Yorkers who suffered because of Zelle’s security failures.”
LILP reached out to Zelle about the lawsuit. Eric Blankenbauer, Senior Director of External Communications at Zelle, called the lawsuit “a political stunt to generate press, not progress,” adding, “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.”
Blankenbauer also refuted James’ claim that her office investigated 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.”