Earlier this year, the Trump administration wisely dropped a Biden administration lawsuit against Zelle. But now Letitia James, the far-left attorney general of New York, has revived the bogus Biden claims in a new lawsuit against the money transfer network. If she prevails, the biggest beneficiaries will be fraudsters and scammers.
It’s striking that James is taking on a company that has realized such extraordinary growth since its launch in 2017. Today, it is used by more than 150 million American consumers and nearly 7 million small businesses.
Zelle payments to small businesses have tripled in the past three years. In 2024, Zelle processed more than $1 trillion in payments, up 27% from the previous year.
Its popularity stems from its ease of use and its fee-free structure — users don’t pay when sending or receiving money. This unique model benefits a wide demographic, from small business owners who rely on seamless payments to unbanked or underbanked populations seeking low-cost financial tools.
None of those benefits matters to James. Her lawsuit claims Zelle hasn’t done enough to protect against fraud.
But the attorney general’s office never investigated Zelle. Had it done so, it would have turned up abundant evidence that fraudulent activity arises from external bad actors, not from any inherent flaws in Zelle’s system or business practices. Suing Zelle is akin to suing the Postal Service or internet providers for facilitating fraud.
According to Zelle, 99.95% of its payments are sent without a report of scams or fraud. This is a product of the company’s robust fraud protections, which include validating the name of the payment’s intended recipient and other security alerts.
That figure looks even better when compared to the federal government’s performance. In 2023, Washington made $236 billion worth of “improper payments,” accounting for nearly 3.6% of all federal payments for the year. And in New York, more than 25% of unemployment insurance payments are “improper.” Maybe James should investigate that?
The state could learn from Zelle, which has a tool used by its participating financial institutions to flag suspicious payments. And when there is evidence of fraud, Zelle reimburses consumers for fraudulent transactions more generously than required by law.
Notably, fraud rates in the banking sector, including online and card payment fraud, are not disproportionately lower than those associated with peer-to-peer systems like Zelle.
If a judge ruled in favor of New York and mandated even more lenient refund policies, fraudsters could exploit those policies by using stolen credentials for unauthorized transfers, knowing that victims would be promptly reimbursed. This would create a moral hazard problem, where insulating individuals from risk increases unwanted behaviors.
The result would be that financial institutions offering Zelle will face higher expenses, which will be passed on to consumers. Many of those consumers are low-income, while many of the banks and credit unions are minority-owned with tight profit margins. Increasing fees on everyone hardly sounds like a way to “protect” consumers.
Similarly, legal or regulatory measures that increase operational costs could deter investment in similar technologies, stifling competition and limiting consumer choice.
New York’s lawsuit doesn’t address the root cause of financial fraud: criminal networks exploiting vulnerable consumers. Cracking down on those networks should be the real goal. Doing so depends on strengthening the ability of law enforcement to investigate and prevent financial fraud.
That means greater surveillance, investigation, and prosecution of criminal actors. This proactive approach targets the root causes of fraud rather than penalizing Zelle for misconduct beyond its control.
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Instead, James has waged a high-profile campaign against Trump, charging him with inflating the value of his real estate assets to obtain better loan terms. Last year, one of the judges on the appellate panel hearing the case concluded, “You’ve got two really sophisticated parties in which no one lost any money.”
Zelle is a great success story, and only extreme liberals like James want to punish this success. New York should drop the lawsuit immediately and ensure that Zelle can continue providing the fast and free services that have made it popular with millions of individuals and businesses throughout the country.
Steve Moore cofounded Unleash Prosperity, which promotes policies fostering economic growth and job creation.