A New Legal Challenge for Zelle

Zelle now faces legal challenges following a series of allegations that it failed to implement crucial safety features. This new lawsuit claims that Zelle enabled criminals to steal over $1 billion from consumers due to its lack of necessary safeguards.

This case builds on previous complaints made by the U.S. Consumer Financial Protection Bureau (CFPB), which was later dropped in March. While Zelle has since strengthened its security measures, the current lawsuit demands that the company further enhance its anti-fraud protection and compensate victims of fraud.

A Shared Responsibility

Zelle is owned by seven major U.S. banks, including JPMorgan Chase, Bank of America, and Wells Fargo. These parent banks operate under the name Early Warning Services (EWS). The lawsuit accuses EWS of knowing for years that Zelle was vulnerable to criminal activity but failing to implement basic safeguards.

An Urgent Rollout

The New York State Attorney General’s office claims that problems began when EWS rushed the launch of an electronic payment platform, enabling its major bank partners to compete with new players like Venmo and PayPal. The lawsuit suggests that this hasty approach prioritized attracting users through a quick registration process and fast transactions at the expense of consumer safety.

The Emergence of Scams

As early as 2018, published reports highlighted scams on Zelle. The platform’s rapid transaction processing became an advantage for criminals who could withdraw money swiftly and irretrievably before disappearing without a trace. According to the complaint, victims reported incidents such as being tricked into paying non-existent bills or losing large sums meant for purchasing puppies.

Addressing the Issues

Zelle claims that most transactions are completed fraud-free. It maintains that scams occur primarily due to individuals falling prey to criminal schemes rather than flaws in the platform itself. Zelle also points out that over 99.95% of its transactions are handled without any reported incidents of fraud.

However, member banks have taken action. In March, JPMorgan Chase updated Zelle’s terms of service to give it the right to delay, block, or cancel payments, especially in cases involving social media risks.

The complaint acknowledges that Zelle began implementing basic safeguards in 2023, though only after CFPB and congressional investigations put pressure on the company to act.