Bank fulfilled its obligation despite customer’s $200,000 loss

Categories:
Common scams targeting bank customers
Summary:
Jennifer was drawn into an investment scam and sent $230,000 to overseas accounts. The bank managed to retrieve $30,000, but Jennifer complained that it should reimburse the unrecovered $200,000. She said the bank breached the duty of care it owed her and was also in breach of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
Published:
January 2020

 

Our investigation

Jennifer believed the bank had breached its duty of care because it had not protected her financial interest. This type of duty of care, when one person must act in the best interest of another, is called a fiduciary duty and applies in relationships of trust and confidence, such as between doctor and patient or lawyer and client. However, it doesn’t normally apply to banking relationships. The bank didn’t owe Jennifer a fiduciary duty, but it did owe her an obligation to act with reasonable skill and care. We thought the bank had complied with this obligation because:

  1. It correctly followed her instructions to transfer the funds.
  2. It complied with industry practice by requiring two-factor authentication to ensure it was actually Jennifer making the payment.
  3. There were no warning signs (red flags) to alert the bank to the fact Jennifer was involved in a scam.

Jennifer also thought the bank had breached the anti-money laundering legislation by not detecting the transactions and issuing a suspicious transaction report. We didn’t agree because the Act is designed to catch people who were knowingly laundering money and sending it to terrorists, which wasn’t the case here. In fact, the Act specifically prevents banks from tipping off customers if they suspect such activity.

However, we considered the bank should have acted more promptly to try to recover her money once notified of the fraud. The delay didn’t cause any financial loss because the funds were already beyond the bank’s reach to recover when Jennifer alerted it to the fraud. Even so, we proposed $1,000 for distress on top of the bank’s offer of $500 for inadequate communication and service.

Outcome

Jennifer did not accept our views and did not accept the offer.

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