Bank acted correctly in warning about investment scam

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Bank acted correctly in warning about investment scam

Categories:

Processing payments, Fraud & scams,

Summary:

In April 2024, Zachery was looking to put $700,000 into a term deposit and called the bank to ask it would offer more than its advertised rate of 5.9 per cent, and also whether it could set up this investment over the phone. It said it would pass on the request, and that the necessary paperwork would have to be completed in person at a branch. Zachery went to the local branch and was given an appointment in two weeks’ time. Frustrated by the delay, Zachery looked online for another bank and found what appeared to be one offering a rate of 6.5 per cent. But it was a scam website, and after calling his bank to increase his internet banking limit, he made the $700,000 transfer via internet banking. Weeks later, he discovered the truth, and his bank was able to recover $159,000.

Published:

February 2025

Zachery complained that the bank failed to undertake any checks about the legitimacy of the recipient, failed to have a confirmation of payee service in place, and failed to notice and prevent the scam. He asked the bank to reimburse his loss. It refused, instead offering him $10,000 for delays in service. Zachery asked us to investigate. (Zachery’s loss of $541,000 was higher than our financial limit of $350,000, but the bank agreed to let us consider the complaint.)

Our investigation

The bank had a duty to follow Zachery’s instructions and process the internet banking transfer. The question we had to consider was whether there were any grounds for the bank to suspect the scam. If there were, the bank would have been obliged to make inquiries and, if warranted, warn Zachery about a possible scam. Zachery’s initial contacts with the bank – to inquire about interest rates and then arrange an appointment – were routine, unremarkable events. We focused on his subsequent call to increase his internet banking limit. As it turned out, the bank did issue two standard investment scam warnings while he was on this call: one was issued verbally by the staff member he was speaking to, and the other was sent by email while Zachery was on the call. The warnings were direct and clear and included the following: “It’s important you understand it’s your responsibility to ensure you know who you are paying funds to.” Zachery verbally confirmed he understood this warning.

Towards the end of the call, Zachery asked the staff member to check that the number of the account to which he intended transferring the money belonged to the bank he believed he was dealing with. He read out the account number, and the staff member confirmed that the prefix – the first two numbers in the sequence – belonged to that bank. However, this merely confirmed that the bank was the correct one, not that the recipient was legitimate and the person to whom he intended sending the money. It would have been best practice at this point for the staff member to have referred Zachery back to the contents of the warnings and reiterated the message that it was his responsibility to check the legitimacy of the recipient. Even so, the staff member’s response to Zachery’s question was accurate.