New York's attorney general has sued the operator of bank-backed P2P payments service Zelle for failing to protect users from "massive amounts of fraud".
New York AG Letitia James claims that Early Warning Services, which is owned by a group of America's biggest banks, designed Zelle without critical safety features, allowing scammers to target users and steal over $1 billion between 2017 and 2023.
"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 to address these glaring flaws or enforce any meaningful anti-fraud rules on its partner banks," says the AG's office in a statement.
Launched in 2017, Zelle is hugely popular, with over 150 million enrolled users, who sent more than $1 trillion through the platform last year. However, the service has also drawn scrutiny, with Senate Democrats, including Elizabeth Warren, calling on financial regulators to take action to tackle fraud on the platform.
Late last year, the Consumer Financial Protection Bureau did just this, filing a suit against Early Warning, as well as JPMorgan Chase, Bank of America and Wells Fargo, for allowing fraud to "fester" on Zelle.
However, in March, the CFPB pulled the suit amid a wider pullback at the agency under new leadership installed by Donald Trump.
AG James alleges in her suit that EWS violated New York law by creating a payment platform highly susceptible to fraud and doing little to stop it for years while falsely marketing it as a safe and secure service.
She is seeking restitution and damages for all affected New Yorkers and court orders mandating EWS maintain necessary anti-fraud safeguards and take other steps to protect their customers from fraud.
In a statement to press, an EWS spokesperson says: "This is nothing more than a copycat of the Consumer Financial Protection Bureau lawsuit that was dismissed in March. Despite the Attorney General’s assertions, they did not conduct an investigation of 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.”