Bank not responsible for fraud loss, but follow-up action was inadequate

Categories:
Common scams targeting bank customers
Summary:
In 2020, Bianca became involved in a romance scam. She tried to transfer $55,000 to an online romantic partner via an international money transfer through her bank, but the recipient bank returned the money, saying it was concerned about the possibility of fraud. The scam was then uncovered.
Published:
January 2023

To protect Bianca, her bank disabled her ability to make international money transfers. A few months later, she became caught up in a second romance scam. She could not make international money transfers, so the scammer convinced her to transfer funds via a New Zealand-based cryptocurrency trader. Bianca broke an $80,000 term deposit and sent cryptocurrency to the scammer over the next few weeks. When she ran out of money, the scammer began depositing funds into her account and asking her to transfer them on. Bianca became uncomfortable with this and realised about a year later that she had been scammed.

 She reported the scam to her local branch but heard nothing back. She contacted us and said the bank ought to have detected the scam, particularly given she had broken her term deposit and had been a scam victim before. We referred her complaint to the bank's complaints team, which mistakenly provided a response about the first scam. After a delay, the bank responded, but denied it was responsible for her loss.

Our investigation

Bianca thought the bank should have taken more care when processing her transfer because she had previously been a scam victim. However, customers are responsible for payments they have authorised, even if tricked by a scammer into making them. A bank is liable for a loss only if it has failed to act with reasonable skill and care by, for example, failing to detect or respond appropriately to a red flag. Banks have systems for detecting fraudulent payments, and we reviewed the bank’s detection algorithms and were satisfied they were appropriate and reasonably effective. The fact the bank’s systems did not detect the scam did not mean they had failed. We considered the removal of her ability to make international money transfer an appropriate response to try to safeguard her against scams. When Bianca called to break her term deposit, the bank did not ask why she wanted to do so. But it wasn't required to ask, and there was nothing to indicate during the call that Bianca was caught up in a scam. We concluded the bank was not liable for Bianca's losses

 The bank had tried to recover some – but not all – of the transactions, saying the chances of recovering the funds were very low because funds transferred through cryptocurrency platforms were often withdrawn or converted immediately, and it had been a year since Bianca had made the transfers. However, we considered the bank had failed Bianca by not attempting to recall all the transactions and by failing to handle her fraud report and complaint properly.

Outcome

The bank offered Bianca compensation of $2,000, an offer she accepted.

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