New York AG Lawsuit Targets Zelle Network Fraud Risks

Thomas Burke and Kristen E. Larson of Ballard Spahr report that New York Attorney General Letitia James has filed a lawsuit against Early Warning Services, LLC (EWS), the operator of the Zelle Network, alleging a failure to protect consumers from fraud. The complaint, much of which remains under seal, alleges that EWS established a payment network that is “highly susceptible to fraudulent activity” and lacks basic safeguards, thereby exposing millions of users to significant risk. While based on New York’s Executive Law § 63(12), the action echoes themes from a prior federal case initiated by the CFPB, which was dismissed with prejudice in March 2025.

The one-count complaint alleges EWS engaged in repeated and persistent fraud through its design, rollout, and oversight of the Zelle Network. First, it asserts that EWS fostered an environment conducive to fraud by integrating Zelle directly into consumers’ banking apps while failing to enforce network rules or implement effective antifraud measures. Second, the AG contends that EWS misrepresented Zelle’s safety and security by promoting its protections despite widespread fraudulent activity and a lack of reimbursement requirements for induced fraud.

The lawsuit seeks injunctive relief to stop the alleged practices, compel EWS to adopt stronger safeguards, and require an accounting of losses reported by New York consumers. Additional remedies sought include restitution, disgorgement, and damages.

This case highlights escalating state-level scrutiny of financial services networks, particularly where consumer protections are in question. The litigation underscores the importance of monitoring not only federal enforcement trends but also state attorney general actions, which may introduce new obligations and amplify risk exposure.