Zelle, backed by big Charlotte banks, sued over claims of $1B in fraud losses

Zelle’s parent company is being sued again over claims it failed to protect customers from fraud on the payment network used by the largest banks in America. Two of those institutions, Bank of America and Wells Fargo, have a heavy presence in Charlotte.

New York Attorney General Letitia James sued Early Warning Services, LLC on Wednesday in New York State Supreme Court. The lawsuit claims that EWS launched Zelle without critical safety measures, which allowed scammers to steal more than $1 billion between 2017 and 2023.

This lawsuit from James, a Democrat, comes five months after the Consumer Financial Protection Bureau dismissed a similar case that it had filed in December. According to multiple media reports, the CFPB abandoned its lawsuit after the Trump administration took over federal agencies.

The CFPB had also sued JPMorgan Chase, Capital One, Charlotte-based Bank of America and Wells Fargo, which has its largest employment hub in the city.

The banks cited in the previous lawsuit and in James’ new filing co-own Zelle along with other large institutions.

After the banks launched Zelle, the service became available to anyone with a U.S. bank account, allowing them to send or receive money transfers through linked email addresses or mobile numbers.

Scammers took advantage of the service’s quick registration process, which lacked strong verification steps, according to James’ office. This resulted in Zelle becoming a hub for fraudulent activity, such as scammers gaining access to accounts and making unauthorized transfers, the office said.

James filed the complaint seeking restitution for affected New York customers. She is also seeking a court order to mandate that Zelle implement anti-fraud measures, according to a news release.

In a statement to The Charlotte Observer, Zelle said the company is fighting to stop fraud and scams, and claimed that James’ lawsuit is “a political stunt to generate press, not progress.”

“The Attorney General wants to hand criminals a blueprint for guaranteed payouts with no consequences, opening the floodgates to more scams, not less,” Zelle said. “This is nothing more than a copycat of the Consumer Financial Protection Bureau lawsuit that was dismissed in March.

A representative from James’ office was unavailable to provide comments or additional information about the case to The Charlotte Observer.

Zelle claimed that James’ office did not conduct an investigation of the company, despite claims to the contrary.

“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,” Zelle said.

Early Warning Services and its subsidiary Zelle are based in Scottsdale, Arizona.

Zelle is offered by more than 2,200 banks and credit unions and has more than 143 million users in the U.S., according to the previous suit. In the first half of this year, users transferred $481 billion through 1.7 billion transactions.

Since 2017, Bank of America has had 210,000 customers who lost more than $290 million from fraud. San Francisco-based Wells Fargo had $220 million in fraud losses by 280,000 customers, the Observer previously reported.

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