NYAG Sues Payment Services Company for Consumer Fraud

The New York Attorney General ("NYAG") sued a bank-owned payment services company, alleging it (i) operated an unsecured platform that enabled consumer fraud and (ii) failed to implement safeguards that would have limited consumer losses.

In the Complaint, filed in the New York Supreme Court, the NYAG alleged that the payment services company

• prioritized growth over security: The NYAG alleged the company rushed the network to market to compete with other payment apps, designing it to be as "simple, easy, and frictionless as possible" at the expense of security, which made the network an "obvious conduit for fraudulent activity."
• failed to implement known safeguards: The NYAG alleged the company had identified a suite of "basic network safeguards" in July 2019 that could have substantially reduced fraud but failed to adopt them for nearly four years. This delay is claimed to have caused "hundreds of millions of dollars in preventable consumer losses."
• Lax Enforcement of Network Rules: The NYAG alleged the company had failed to meaningfully enforce its own network rules designed to detect and prevent fraud, even when it knew participating banks were systematically violating them.
• Misleading Marketing: The NYAG alleged the company had repeatedly assured consumers that the network was "safe" and "secure" and "backed by the banks," despite knowing the network was "teeming with fraudsters" and lacked adequate protections.
• Creating an Atmosphere Conducive to Fraud: The NYAG alleged the company had made certain choices—such as minimal verification, immediate funds availability, and allowing users to link multiple accounts and tokens—that created an environment that enabled fraudsters to easily swindle consumers while evading detection. The two primary types of fraud mentioned are:
  • Takeover Fraud: Where a fraudster gains unauthorized access to a user's account.
  • Induced Fraud (Scams): Where a fraudster convinces a user to send money under false pretenses.

The NYAG charged the company with repeated and persistent fraudulent practices, misrepresentations about the product’s safety, and failing to adequately enforce network rules that allowed participating banks to delay or avoid reporting fraudulent activity. The NYAG asserted that this conduct authorized the NYAG to take action pursuant to New York Executive Law § 63(12).

The NYAG urged the Court to (i) enjoin the alleged practices, (ii) require effective antifraud safeguards, (iii) compel an accounting of all New York consumer fraud reports, (iv) award restitution, damages, and disgorgement of "all profits from the alleged practices," and (v) grant any other appropriate relief.