BAC, JPM & COF-Owned Zelle App Faces Lawsuit Over Security Lapse

On Wednesday, the New York Attorney General, Letitia James, filed a lawsuit against Zelle, alleging that the payment platform failed to implement crucial safety measures, allowing fraudsters to steal over $1 billion from consumers.

Zelle App’s parent, Early Warning Services, is owned by large banks, including Bank of America BAC, JPMorgan JPM, Capital One COF and others.

Details About the Matter

Zelle was rolled out in 2017 and competes with apps such as PayPal's Venmo and Block's Cash App.

James stated that Zelle’s parent companies, including Bank of America, JPMorgan and Capital One, were aware of the platform’s susceptibility but failed to implement basic safeguards. Further, the banks continued to ignore complaints from clients while allowing fraudsters to stay on the platform.

The complaint said this led to widespread fraud that Zelle at times declined to address, even after incidents occurred. This was in spite of the fact that it promoted itself as a safe cash and check alternative “backed by the banks” and therefore secure.

James said common scams included hacking user accounts to make unauthorized transfers, convincing people into paying for non-existent goods or services, and posing as banks, government agencies or utility firms.

James said Zelle only implemented the basic safeguards it had proposed four years earlier in 2023 after probes were initiated by the Consumer Financial Protection Bureau (CFPB) and several members of Congress.

The lawsuit seeks to require Zelle to strengthen its anti-fraud measures and provide restitution and damages to New Yorkers who were defrauded. This lawsuit follows the CFPB’s decision to drop a similar case in March.

Response From Zelle

In a statement, Zelle said scams originate from criminals tricking people into sending money, not from the platform itself. Thus, holding the platform responsible could result in higher fees for consumers.

Zelle added that more than 99.95% of transactions are completed without any reported fraud, the highest rate in the industry.

“The Attorney General should focus on the hard facts, stopping criminal activity and adherence to the law, not overreach and meritless claims,” Zelle stated.

Bank of America, Capital One and JPMorgan and other banks weren’t named as defendants.

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This article originally published on Zacks Investment Research (zacks.com).

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