New York Sues Zelle: What To Know About Alleged $1 Billion Scams Over The App
The New York Attorney General's Office has launched a lawsuit against Early Warning Services, LLC, the company behind the popular online payment app Zelle. The lawsuit alleges that fraudsters stole a staggering $1 billion from consumers due to the company's failure to implement adequate security features on its platform.
A Quick and Easy Target for Scammers
Zelle was developed by Early Warning Services as a way to compete with PayPal and Venmo. However, according to New York Attorney General Letitia James' office, the company rushed its app to market without fully implementing necessary security features. This created an easy target for fraudsters.
- Easy registration process
- Lack of verification
- Limited information displayed to consumers who send money
The complaint alleges that these features allowed scammers to sign up and take advantage of users with ease. In one example, a scammer posed as a ConEdison employee, convincing a victim to transfer $1,476.89 to a Zelle account under false pretenses.
A Pattern of Failure to Address Fraud
The New York Attorney General's Office claims that Early Warning Services was aware of rampant fraud on its platform but failed to take meaningful action to stop it. This pattern of failure is similar to the Consumer Financial Protection Bureau's (CFPB) lawsuit, which was dropped by the agency in March after the Trump administration moved to shut down its work.
A Counter-Narrative from Zelle
Eric Blankenbaker, a spokesperson for Zelle, has called the lawsuit a "political stunt to generate press." The company claims that the New York suit is "nothing more than a copycat" of the CFPB's dropped lawsuit and that the attorney general's office did not conduct a thorough investigation.
"Had they conducted an investigation," Blankenbaker said, "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."
A History of Regulatory Battles
The New York Attorney General's Office has a history of taking on companies accused of exploiting consumers. In May, they announced a suit against Capital One, alleging the bank took advantage of customers who thought its 360 Savings accounts offered higher interest rates. The bank has denied these allegations.
Additionally, James' office secured a settlement with MoneyGram, agreeing to pay a $250,000 fine in exchange for settling a lawsuit filed in 2022. A similar lawsuit against the company was dropped by the CFPB in April.
The Next Steps
The New York Attorney General's Office is seeking "restitution and damages" for New Yorkers impacted by Zelle's alleged security failures. They are also demanding a court order requiring Early Warning Services to implement "anti-fraud measures necessary to protect its users." The outcome of the lawsuit remains to be seen, but it's clear that consumers will be watching closely as this case unfolds.