$1 billion may just become the cost of online banking

New York State Attorney General Letitia James's lawsuit against the bank group that runs Zelle is still alive. A state judge on Thursday declined to throw out the case, as Zelle owner Early Warning Services had requested, our Carter Pape reported.

What's happening here is people are being tricked into handing over money to online con artists via Zelle, an online payments app run by a consortium called Early Warning that comprises seven of the nation's biggest banks. James is suing the group for $1 billion over what she claims are deficiencies in their fraud-fighting ability. 

Because so much of the bank world is centered in New York, the New York AG is a powerful figure. And James is tapping a state law to try and force the banks to compensate the victims in a way that federal laws do not. And of course banks, for competitive reasons as well as P&L reasons, do not want to be legally liable for those losses.

James is arguing that the banks marketed Zelle as safe but knew it was not, leaving users with a false impression and false sense of security. The banks argued that James is using the suit as a political stunt, and that the system is largely safe — 99.98% of transactions are free from fraud.

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That stat comes from an Early Warning press release from last year talking about traffic in the first half of 2025.  Zelle processed 2 billion payments in those six months, according to Early Warning.  "For perspective, you are more likely to get food poisoning (3%), be in a car accident (around 2%) or get injured by a toilet (0.07%) than experience fraud or scam related to Zelle as a payment method today," the release stated.

Forget for a second where they found the toilet stat. If their percentages are correct, it still means there were millions of instances of fraudulent transactions on Zelle. I'm not doing that math to try and make the banks look bad, but to raise the issue that is bigger than even the AG's suit: The problem here is the nature of the internet and social media itself.

A Gallup report found that Americans — just Americans — lost $68 billion to fraud in 2025, as Carter reported on Wednesday. That's $68 billion, with a b. The official numbers reported to the federal government were "only" $16 billion. The Gallup number is an estimate, to be sure, but even if it's off by 50%, the number would still be twice what the government reports. 

Whether James wins or the banks win won't change the fact online fraud exists and it is not going to go away because it is profitable to the people perpetrating it. The banks cannot on their own change the nature of the internet, or human beings for that matter (there is an exploration of online security versus cost to be had, I reckon, but I don't have the space right now to get into that). The best thing banks can do is run really comp rehensive anti-fraud education programs, and some do this. Our Nathan Place did a piece last month about Bank of America's fraud-awareness "scaminars." Absent that, reimbursing defrauded users may just become a cost of doing business. And seeing how good business is these days, that's really not such a big cost. 

Hey, at least they can split the cost seven ways.