**New York Sues Zelle Over $1 Billion Consumer Fraud Losses**

In a landmark lawsuit filed by New York Attorney General Letitia James, Zelle has been taken to task for its alleged failure to adopt critical safety features that would have prevented consumers from losing over $1 billion to fraudsters. The electronic payment platform's refusal to implement these measures allowed scammers to exploit unsuspecting users, leaving a trail of financial devastation in their wake.

Launched in 2017, Zelle competes with popular apps like PayPal's Venmo and Block's Cash App. Its parent company, Early Warning Services, is owned by seven major US banks: Bank of America, Capital One, JPMorgan Chase, PNC, Truist, US Bank, and Wells Fargo. Despite being touted as a safe alternative to cash and checks, Zelle's vulnerability to fraudsters has been well-documented for years.

According to James, the banks and Early Warning Services knew about the platform's security issues but chose to ignore customer complaints and resist basic safeguards. This lack of oversight allowed "rampant" fraud to continue unchecked, with Zelle sometimes refusing to address scams even after they occurred. The result was a staggering $1 billion in consumer losses, as scammers exploited users through various tactics, including hacking into accounts, impersonating banks and government offices, and convincing victims to send money for nonexistent goods and services.

In a statement, Zelle claimed that scams start when criminals trick people into sending money, rather than on the platform itself. Holding the company liable could lead to higher fees for consumers, Zelle said. However, James countered that this argument was a thinly veiled attempt to deflect responsibility, saying, "The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims."

The seven banks behind Early Warning Services were not named as defendants in the lawsuit. However, James did say that typical scams involved hacking into users' accounts, making unauthorized transfers, convincing victims to send money for nonexistent goods and services, and impersonating banks, government offices, and utilities.

One example of a scam victim was told by Zelle that his electricity would be shut off unless he paid $1,477 via the platform to an account named "Coned Billing," which was later revealed to be a fake. Another victim lost $2,600 in two installments after sending money through Zelle to buy a puppy from a purported seller, only to realize he had been scammed when the seller demanded more money.

James acknowledged that Zelle did finally adopt some basic safeguards in 2023, after pressure from regulators and Congress. However, she argued that these measures came too late for consumers who had already lost money due to the platform's failure to address security issues earlier on.

The lawsuit seeks to require Zelle to beef up its anti-fraud protections, as well as pay restitution and damages to defrauded New Yorkers. James has a history of taking on financial institutions over consumer protection concerns, having previously sued Capital One for allegedly cheating savings depositors out of millions of dollars in interest and settling claims against MoneyGram over remittance transfer lapses.

As the case unfolds, it will be crucial to determine whether Zelle's parent company and banks were adequately responsible for the platform's security issues. If found liable, they could face significant penalties and reforms aimed at protecting consumers from similar scams in the future.