A New Lawsuit Against Zelle Over Fraud Allegations
New York State Attorney General’s office has filed a lawsuit against the company behind Zelle over allegations that it lacked essential safety measures. This new complaint builds on an earlier case by the U.S. Consumer Financial Protection Bureau (CFPB), which was dropped in March.
Although Zelle has since implemented additional protective measures, the lawsuit aims to compel the company to enhance its anti-fraud protections and provide restitution for victims who lost over $1 billion. Zelle is owned by several of the country’s largest banks, including JPMorgan Chase, Bank of America, and Wells Fargo.
Known as Early Warning Services (EWS), the parent banks are accused of knowing about these security issues for years but failing to implement basic safeguards.
The complaint states that EWS knew from the beginning that key features of the Zelle network made it uniquely susceptible to fraud, and yet it failed to adopt basic safeguards or enforce meaningful anti-fraud rules on its partner banks.”
Quick Platform Rollout Led to Security Issues
The problems reportedly started when EWS rapidly launched an electronic payment platform, aiming to compete with new apps like Venmo and PayPal. In their rush to launch the service, EWS prioritized a simple registration process and quick transfers that left consumers vulnerable to scammers.
Reports as early as 2018 indicated scams were already widespread on Zelle. Scammers used rapid payment resolution as an advantage to withdraw money quickly and irretrievably, then disappear without trace. According to the complaint, one victim was told his electricity would be shut off unless he paid Coned Billing” $1,477 via Zelle, while another sent $2,600 in installments to buy a puppy but received no help from Zelle when faced with fraud.
Addressing the Fraud Concerns
Zelle contends that scams result from individuals being tricked into sending money rather than issues inherent in the platform. The company claims that over 99.95% of transactions are completed without any reported fraud.
The member banks have taken steps to address these concerns, with JPMorgan Chase updating its Zelle terms of service in March 2023. This update granted Chase the authority to delay, block, or cancel payments and highlighted social media as a high-risk area for fraud. However, the complaint acknowledges that basic safeguards were only implemented starting in 2023 after investigations by the CFPB and several Congress members.
