Manhattan Judge Allows New York's $1 Billion Zelle Fraud Lawsuit to Proceed, Rejecting Operator's Dismissal Bid
Manhattan Judge Allows New York’s $1 Billion Zelle Fraud Lawsuit to Proceed, Rejecting Operator’s Dismissal Bid #
A New York state court judge has allowed Attorney General Letitia James’s fraud lawsuit against Zelle’s operator to proceed, rejecting the bank-backed payments network’s bid to have the case dismissed before trial.
Justice Phaedra Perry-Bond of the Manhattan Supreme Court on Monday denied nearly all of a motion to dismiss filed by Early Warning Services, the company that operates Zelle and is jointly owned by seven of the largest U.S. banks: Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo. The ruling, issued on July 20, allows the attorney general’s claims to proceed into discovery.
In her decision, Perry-Bond found that James had sufficiently alleged that Early Warning Services had “prioritized accessibility, convenience, consumer adoption, and market dominance at the expense of consumer safety” as it rushed the platform to market, doing so even over objections raised by its own banking partners. The judge also noted that Zelle conceded it continues to collect and retain fees from fraudulent transactions, a fact that raised the question of whether the company had implicitly or expressly approved the conduct underlying the fraud.
James filed the lawsuit in August 2025, five months after the Consumer Financial Protection Bureau dropped a similar federal case against Early Warning Services and three of its owner banks amid the agency’s broader rollback under the Trump administration. The state’s complaint alleges that New York consumers lost more than $1 billion through fraud on Zelle between 2017 and 2023, pointing to two primary methods: “takeover fraud,” in which bad actors seize control of an account and drain it, and “induced fraud,” in which victims are manipulated into transferring money under false pretenses. The attorney general has also objected to Zelle’s marketing, which described the service as “backed by the banks, so you know it’s secure.”
Early Warning Services moved to dismiss the case in April 2026, and in June the American Bankers Association along with a coalition of trade groups filed an amicus brief urging the court to throw it out. The company said it intends to appeal Monday’s ruling. Spokesperson Eric Blankenbaker denied the allegations, saying the attorney general was “targeting our company for political gain by recycling claims that courts across the country have rejected as meritless.”
The attorney general’s office is seeking restitution and damages for affected New Yorkers, court-ordered fraud protections for Zelle users, and an order requiring the company to identify state residents who reported losses on the network. The case is styled People of the State of New York v. Early Warning Services, LLC.
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