New York Accuses Bank-Backed Zelle of $1 Billion Security Bungle

New York Attorney General Letitia James says the digital payments network Zelle, owned by a consortium of Wall Street banking giants, “has been teeming with fraudsters who have stolen staggering sums from consumers.”

Zelle says James’ office, which accused its parent Early Warning Services in a lawsuit Wednesday of enabling fraud by doing next to nothing to stop it, is engaging in nothing more than a “political stunt to generate press.”  The heated exchange made for exciting, Billions-style drama, but more importantly, offered a look at the state of clampdowns on Corporate America in 2025 and beyond.

New York State of Mind

Zelle was launched in 2017 as an alternative to peer-to-peer payment platforms like PayPal and its subsidiary Venmo, with the selling point being that it was backed by the weight of the country’s top consumer banks. Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo jointly own its parent, and some 2,200 financial institutions allow customers to use Zelle directly through their app or services.

It’s not an understatement to say that, with access to the enormous customer base of all these financial institutions, Zelle has taken off. Last year, the network topped $1 trillion in person-to-person transactions, a 27% year-over-year increase, while its user base grew 12% to 151 million accounts. That was the most in P2P transactions for any payments service in a single year — PayPal, by comparison, reported $400 billion in P2P payments in 2024. But Zelle’s astronomical growth, the state Attorney General’s Office alleged, coincided with negligent loopholes the size of the Milky Way Galaxy:

• New York’s lawsuit claims Zelle’s registration process was missing verification steps, which it alleges EWS and its bank backers were aware contributed to fraud amounting to roughly $1 billion, “for years.” James is seeking restitution and damages based on the claim that scammers stole more than $1 billion from Zelle users from 2017 to 2023, and is asking for a court order requiring Zelle to put anti-fraud measures in place.
• Zelle, rebuffing the lawsuit, said the Attorney General’s Office did not conduct an investigation of its platform and argued the claims are meritless. “Had they conducted an investigation, they would have learned that more than 99.95% of all Zelle transactions are completed without any report of scam or fraud — which leads the industry,” a spokesperson said.

Cases Closed: James’ lawsuit suggests that states that disagree with the Consumer Financial Protection Bureau’s softening approach to bank oversight may file their own lawsuits where the agency has stepped back, though consumer advocacy groups have questioned whether they could fill the gap.