Zelle Loses Bid to Dismiss New York Fraud Lawsuit

Zelle must face a New York lawsuit accusing its operator of allowing widespread fraud while promoting the payment service as safe and secure, after a Manhattan judge rejected the company's bid to dismiss the case.

New York Attorney General Letitia James sued Early Warning Services, which operates Zelle, in August 2025 following a state investigation into fraud on the payment network. New York says consumers lost more than $1 billion through fraud on Zelle between 2017 and 2023 and claims the company failed for years to adopt protections that could have reduced those losses.

Justice Phaedra Perry-Bond found that the allegations were sufficient for the case to continue. In rejecting the dismissal request, she said the state had adequately alleged that Zelle's operator prioritized accessibility, convenience, consumer adoption and market growth over safety while developing the network.

Early Warning Services is owned by seven major U.S. banks, including JPMorgan Chase, Bank of America, Wells Fargo and Capital One. Zelle launched in 2017 and allows customers of participating banks and credit unions to send money directly between accounts, often within minutes.

According to the complaint, scammers took advantage of the network in several ways. Some allegedly gained access to customer accounts and made unauthorized transfers, while others posed as banks, government agencies, utilities or legitimate sellers to persuade users to send money themselves.

New York claims Zelle's operator recognized some of those risks years before making major changes to the network. Additional fraud controls were allegedly developed in 2019, but key protections were not fully adopted until 2023, after scrutiny from federal regulators and members of Congress.

Reported consumer losses fell by hundreds of millions of dollars after the additional safeguards were introduced, according to the state, even as the amount of money moving through Zelle continued to increase. New York points to the decline as evidence that stronger controls could have limited fraud earlier.

The lawsuit was brought under Executive Law § 63(12), which gives the New York attorney general authority to challenge repeated or persistent fraud in business. The law uses a broad definition of fraud that can cover deceptive or misleading business practices and allows courts to order restitution, damages and changes to unlawful conduct.

A central question is whether the way Zelle was designed, operated and promoted can fall under that law when outside scammers carried out the thefts. New York claims the payment network's own business practices contributed to conditions that allowed fraud to continue.

Early Warning Services argued that describing Zelle as safe and secure was not misleading and that an alleged failure to stop misconduct by outsiders did not amount to fraud by the company. Zelle's operator characterized the claims as "passive nonfeasance," referring to an alleged failure to act rather than affirmative fraudulent conduct.

Perry-Bond rejected that argument at this stage. She also pointed to allegations involving fees tied to fraudulent transactions. Early Warning Services acknowledged that it continues to collect and retain fees from such transactions, which the judge said raised a question about whether the company had implicitly or expressly approved the conduct.

The attorney general is seeking restitution and damages for affected New Yorkers, along with court-ordered fraud protections for Zelle users. New York also wants the company to identify state residents who reported losses through the network.

A federal lawsuit filed by the Consumer Financial Protection Bureau in December 2024 raised similar concerns about fraud on Zelle and named Early Warning Services, Bank of America, JPMorgan Chase and Wells Fargo. The CFPB dropped the case in March 2025, about five months before New York filed its lawsuit.

Early Warning Services denies the allegations and said it intends to appeal the ruling.