Early Warning Shirked Safeguards, NY Says

The New York attorney general’s lawsuit against Zelle’s parent company, Early Warning Services, highlights a period in July 2019 when the bank-owned payments network allegedly developed several “critical” security measures and rule changes to combat fraud on its platform.

But EWS didn’t deploy them until four years later, according to Attorney General Letitia James’ lawsuit filed Wednesday in state court. 

However, when Early Warning implemented the measures in 2023, “the result was both immediate and immense: Despite overall transfers over the Zelle network growing by billions of dollars that year, consumer losses to reported fraudulent activity dropped by hundreds of millions of dollars,” according to the lawsuit.

During the prior years, “consumers constantly fell victim to fraudsters operating over the Zelle network, losing hundreds of millions of dollars to preventable fraud,” as EWS and the banks that own it earned “hundreds of millions of dollars from Zelle’s continued growth,” the lawsuit said.

Phil Selden, a Washington, D.C., defense attorney with Cole Schotz specializing in government enforcement investigations and litigation, said growth and frictionless transactions may sometimes outweigh other considerations for some companies. 

“Speed is great if you’re a track star or you’re operating a race car, but sometimes speed without training for those who are catching fraud, waste and abuse can be problematic,” said Selden, a former acting U.S. attorney in Maryland.

The lawsuit follows on federal regulators previously suing EWS over consumer fraud perpetrated on Zelle, mirroring several allegations of the earlier Consumer Financial Protection Bureau federal lawsuit lodged in December 2024 in Arizona. 

The agency withdrew its complaint against EWS and three of its large bank owners in March as the Trump administration began to dramatically reduce the CFPB’s mission and staffing. 

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