Business

A Judge Refused to Dismiss New York’s Lawsuit Against Zelle Over $1 Billion in Consumer Fraud

By Erica Coleman · July 23, 2026

Zelle is on roughly 2,000 banking apps in the United States. Its parent company is owned by seven of the country’s largest banks. And according to New York Attorney General Letitia James, it spent years letting fraudsters steal from consumers rather than adopt basic safety measures that might have slowed its growth.

A New York state court judge refused Tuesday to dismiss James’ lawsuit against Early Warning Services — the bank-owned entity that operates Zelle — allowing the case to move into discovery and keeping alive the state’s bid for consumer restitution and court-ordered changes to the platform’s fraud controls.

Justice Phaedra Perry-Bond found that James had sufficiently alleged Early Warning Services “prioritized accessibility, convenience, consumer adoption, and market dominance at the expense of consumer safety” when it rushed Zelle to market in 2017 over the objections of its own banking partners. The judge also noted that Zelle conceded it was still collecting and retaining fees from fraudulent transactions — raising the question of whether it had implicitly approved the fraud that generated them.

James filed the lawsuit in August 2025, after the Consumer Financial Protection Bureau dropped a similar federal case in March of that year. The CFPB had opened its investigation under the Biden administration and abandoned it after Trump took office and directed the agency to scale back enforcement. James’ state-level case picked up where the federal action left off.

According to the complaint, the fraud followed a few consistent patterns: hackers breaking into users’ accounts and initiating unauthorized transfers, scammers convincing users to send money for goods that didn’t exist, and criminals impersonating banks, government offices, and utility companies. James alleged that $1 billion was stolen from consumers between 2017 and 2023, and that Zelle didn’t adopt what she called “basic” safety features until 2023 — only after congressional scrutiny and CFPB pressure made inaction untenable.

Early Warning Services is owned by Bank of America, Capital One, JPMorgan Chase, PNC, Truist, US Bank, and Wells Fargo. The lawsuit names the seven banks as defendants alongside the parent company. James alleged the banks sometimes ignored customer fraud complaints while Zelle allowed fraudsters to remain active on the platform.

Zelle strongly denied the allegations. “Reports of fraud and scams committed by bad actors against Zelle users have always been exceptionally low.” company spokesperson Eric Blankenbaker said, adding that more than 99.95% of transactions are completed without reported fraud. Zelle said it plans to appeal Tuesday’s ruling.

The case now moves into discovery, where both sides can seek internal documents and depose witnesses about Zelle’s fraud controls and the decisions made in the platform’s early years. That process will determine what evidence reaches a jury — and whether the platform’s own records support what James has alleged about how much Zelle’s leadership knew, and when.