New Suit Over Fraud Allegations Against Zelle
Zelle faces a fresh lawsuit due to alleged deficiencies that allowed criminals to steal over $1 billion from users. This case follows an earlier complaint lodged by the U.S. Consumer Financial Protection Bureau (CFPB), which was subsequently dropped in March. Despite implementing certain protective measures, the lawsuit seeks to force Zelle and its parent banks to enhance anti-fraud protections and provide compensation to victims.
Zelle Owned by Major Banks
Zelle is owned by seven major U.S. banks, including JPMorgan Chase, Bank of America, and Wells Fargo, operating under the name Early Warning Services (EWS). The lawsuit alleges that these parent companies were aware for years that Zelle was vulnerable to criminal activity but did not implement basic safeguards until it became unavoidable.
Key Claims in the Complaint
According to the complaint: “EWS knew from the start that key features of Zelle made it particularly susceptible to fraud, yet it failed to adopt fundamental safeguards or enforce significant anti-fraud rules on its partner banks.” The lawsuit argues that EWS prioritized quick user sign-ups and fast transfers over implementing robust security measures.
Early Problems with Zelle
Published reports as early as 2018 highlighted that scams were already prevalent on the platform. The rapid transfer resolution became a boon for criminals, who could withdraw funds quickly and irreversibly before vanishing without a trace. A victim was told his electricity would be cut off if he did not pay “Coned Billing” $1,477 via Zelle, while another lost $2,600 in two installments to buy a puppy. Despite these issues, Zelle maintains that most transactions are fraud-free.
Parent Banks Addressing Issues
In March, JPMorgan Chase updated its terms of service for Zelle to allow the bank to delay or block payments, particularly those involving social media. The complaint acknowledges that Zelle began implementing basic safeguards in 2023, following investigations by the CFPB and members of Congress.