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The New York Attorney General has filed a high-profile lawsuit against Zelle, alleging that systemic security failings at the peer-to-peer (P2P) payments platform enabled fraudsters to steal more than $1 billion from consumers.
New York sues Zelle
The complaint, lodged in Manhattan, accuses Zelle’s parent company Early Warning Services (EWS)—a consortium owned by seven of the largest US banks, including JPMorgan Chase, Wells Fargo and Bank of America—of resisting “basic safeguards” despite being aware of persistent vulnerabilities for years.
Vulnerabilities and Consumer Losses
Launched in 2017, Zelle quickly grew to rival Venmo and Cash App by marketing itself as a fast, bank-backed and secure alternative to cash and cheques.
However, Attorney General Letitia James claims the platform’s very design left consumers exposed.
Scammers reportedly exploited weak account protections by hacking user credentials, impersonating banks and utilities, or fabricating online sales.
Examples in the complaint include a New Yorker coerced into paying a fraudulent Con Edison electricity bill, and another who lost $2,600 in a “puppy scam” after wiring money to a fake breeder.
James argues that consumer complaints were often ignored, while Zelle allowed suspicious accounts to remain active.
Although the company introduced additional safeguards in 2023—under pressure from Congress and the Consumer Financial Protection Bureau (CFPB)—the lawsuit contends these came “too little, too late” for victims.
Zelle and Industry Pushback
Zelle has rejected the allegations, framing the case as politically motivated. In a statement, the platform emphasised that more than 99.95% of its transactions occur without reported fraud, positioning itself as an industry leader in security.
“This lawsuit is a political stunt to generate press, not progress,” the company said, adding that liability for scams lies with criminals who deceive users, not with the network itself.
EWS also warned that if courts impose sweeping reimbursement obligations, costs could rise sharply for consumers.
Consumer advocacy voices are split.
The Consumer Choice Center argued that targeting the platform rather than the scammers amounts to “regulating by enforcement,” warning it could lead to de-risking and debanking of legitimate users, alongside stricter barriers to accessing P2P payments.
“Rather than focusing on actual scammers and criminals harming American consumers, New York is overstepping its authority in suing a peer-to-peer payment app used by millions of consumers to send and receive payments and ignoring the thousands of scammers they could easily reach who are already breaking the law,” said Yaël Ossowski, deputy director of the consumer advocacy group Consumer Choice Center.
“In targeting the platform rather than punishing those who perpetuate fraud, the state is regulating by enforcement, hoping to introduce backdoor liability for FinTech firms and payment services that hasn’t been endorsed or approved by Congress or any state law. This could make debanking and offloading of customers even worse, which is recognized as problem for everyday Americans.
A Regulatory Test Case
The lawsuit closely mirrors a CFPB action filed in 2024 but later dropped following a shift in federal enforcement priorities.
By reviving the claims at the state level, New York has reignited debate over whether fintech platforms should bear direct liability for fraud losses.
For the payments industry, the case raises fundamental questions.
Should P2P providers be treated more like banks, with mandatory reimbursement frameworks? Or is consumer education and criminal enforcement the more appropriate remedy?
With Zelle processing hundreds of billions of dollars annually, the outcome will be closely watched by regulators, banks, and fintech rivals worldwide.
At stake is not only Zelle’s reputation but the future governance model for digital payments in the United States.
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