Our investigation

A bank has a strict duty to follow a customer’s transaction instructions. However, in carrying out the customer’s instructions, a bank must act with reasonable care and skill and in accordance with good banking practice. If a bank detects suspicions of a scam (so-called red flags), good banking practice requires it to make inquiries about the transaction and, where warranted, warn the customer about the possibility of a scam before processing the transaction. In the absence of such warning signs, however, a bank is not obliged to question any transaction to protect a customer from a scam or fraud. We examined Charlie’s interactions with the bank at the time to determine whether there were grounds for the bank to suspect a scam. We found no such grounds. His transfers were via internet banking using two-factor authentication codes. They were automated payments and aroused no suspicions. Banks are not required to have systems to monitor transactions for signs of scams. Charlie entered the name of the bank in the payment fields – which obviously did not match the account number of the real recipient – but banks are not required to ensure such a match. Finally, we found nothing in Charlie’s call to his bank about term deposit rates to suggest a possible scam. However, we learned the recipient bank had notified Charlie’s bank some months later that it had recovered $10,000, although this may have included funds recovered from other scam victims as well. It sought a signed indemnity before returning the money. Charlie’s bank failed to act promptly on the request or notify Charlie.

Outcome

The bank offered Charlie an apology and $20,000 in recognition of the stress and inconvenience he had suffered. Charlie accepted the offer.