Zelle is one of the most used payment platforms in the United States, due in large part to the speed and ease of sending money through the app. But that same speed also opened the door to scammers. Although the Consumer Financial Protection Bureau (CFPB) dismissed a similar lawsuit a few months ago, New York Attorney General Letitia James has decided to take legal action against Early Warning Services, LLC (EWS), the company behind Zelle, for "failing to protect its users from massive fraud for years."
What is the lawsuit about, and what repercussions could it have? What are your options if you've been scammed?
The Allegations
The New York Attorney General's office alleges EWS, which owns Zelle, violated New York law by creating a payment platform highly susceptible to fraud and doing "virtually" nothing to protect users.
The complaint specifies:
- More than $1 billion in losses between 2017 and 2023. “Zelle’s emphasis on immediate and irreversible transfers means that by the time consumers realize they’ve been victimized by scammers, their money is often gone,” according to a statement by the New York Attorney General’s Office.
- EWS knew about the vulnerabilities from the start. “In its rush to launch its platform, EWS prioritized attracting new customers through a simple, easy sign-up process and rapid transfers, while leaving consumers vulnerable to scammers,” who could sign up through “a process that lacked important verification steps and used deceptive email addresses.”
- Zelle was slow to respond to vulnerabilities. “EWS knew, from the outset, that several features of the Zelle network made it especially susceptible to fraud; yet for years it failed to take basic security measures to address these glaring flaws or impose meaningful anti-fraud regulations on its partner banks.” EWS, the lawsuit notes, developed basic safeguards to address these issues as early as 2019, but failed to adopt them.
Will Victims Get Compensation?
This will depend on the decision of a New York state court in Manhattan. If the attorney general's office is successful, restitution and damages would be awarded to the affected New Yorkers. Since the CFPB dropped the case, the decision will only affect residents of New York. However, the lawsuit could result in a court order requiring EWS to maintain necessary anti-fraud measures to protect its customers.
What Does Zelle Say?
Zelle argues that 99.95% of transactions are completed without fraud and calls the lawsuit a political maneuver. In a brief statement, Zelle asserted that it is “a leader in the fight to stop fraud and scams in the United States.” They claim that this lawsuit seeks “to generate publicity, not progress,” and “give criminals a plan for guaranteed payments without consequences, opening the door to more scams.”
How Do the Most Common Zelle Scams Work?
Most fraud scams conducted online, including through Zelle, have similar characteristics. One big red flag to watch out for is urgency. Most fraud schemes request immediate payment either to avoid a catastrophe or to get huge returns — but only if you act immediately.
These are the most common types of scams:
- Business or authority impersonation: Fake calls, letters, or emails from supposed utility company employees or government agencies demanding immediate payments.
- Phantom sales: Offers for nonexistent goods that are available for a limited time. One example is a going-out-of-business sale for a fake company.
- Unauthorized access: Scammers hack into user accounts and send funds to third parties.
What to Do If You Were the Victim of Online Fraud
Time is of the essence. The sooner you act, the more legal options you have. Report the theft to your bank immediately and save all responses you receive. Gather evidence: screenshots, emails, usernames, receipts. Report to the FTC at ReportFraud.ftc.gov and to your state attorney general's office.
The New York Attorney General urges all consumers who have been victims of Zelle scammers to report it to the OAG's Bureau of Consumer Fraud.
A qualified attorney can help you file a claim under federal and state consumer laws. Depending on the circumstances, you may also be able to join a class action.
How to Protect Yourself
Fraud crimes are quite common and take many forms: consumer, insurance, telemedicine, identity theft, immigration, credit card, tax, and catfishing. Protecting yourself against all forms of fraud requires a certain amount of care. Here are some things you can do to protect yourself:
- Be wary of urgent requests for online payments. The same goes for too-good-to-be-true job offers that require you to invest money.
- Verify directly with your bank or the company that supposedly contacted you. If a company or official entity is asking you to pay for an outstanding service or bill, they will be able to explain it directly when you call or contact them and provide you with an itemized bill.
- Don't send money to strangers or unknown companies. It seems obvious, but some scammers have gotten good. Watch out for newly created profiles with zero references on online sales platforms like Marketplace, eBay, or OfferUp.
- Set up alerts and use multi-factor authentication. Use it for all of your bank accounts and online payment platforms.
- Get a second opinion: Many scammers take advantage of people's fear or hardship when impersonating banks, companies, or official entities. You can always search to see if it's a growing scam. When in doubt, ask a friend or relative for their take. This also gives you some time to think about it and not react out of fear.
Digital fraud doesn't discriminate between ages or educational levels: anyone can be a victim. If you've been scammed, act quickly and document everything. Getting informed is your best defense.
Related Resources
- Executive Order Encourages Alternative 401(k) Investing, but Will Fund Managers Take the Risk? (FindLaw's Law and Daily Life)
- CFPB Drops Another Lawsuit Against Payment App and Banks (FindLaw's Law and Daily Life)
- Multiple Child Sexual Exploitation Lawsuits Have Roblox "Powering Litigation" (FindLaw's Law and Daily Life)
