Imagine that you stop for gas on your way home after a long day at work. You pull up to the pump, exit your vehicle and swipe your bank card. But for some reason, your card is declined. This can’t be – you had plenty of money in your account when you woke up that morning. In fact, you review your account every day. There must be some mistake. You log-on to your online bank account, only to see that it now has a zero balance. You review the recent transactions and find that, earlier that same day, various outgoing transfers were made to an unfamiliar bank account. Each transfer is marked as a “wire.” You call your bank, and they say, “Sorry, but that money is gone.” You plead with them to return your money, arguing that you’ve never wired funds and that you shouldn’t be held responsible. But your bank says the deed has been done – “Wires are instantaneous and there is nothing I can do,” remarks the customer service representative. Are you really out of luck like your bank claims?
Part Three in Kelly Guzzo’s series of articles on online bank fraud deals with wire transfers (Parts One and Two dealt with general rights and electronic fund transfers, respectively). Wire transfers are governed by state law. In Virginia, for example, wire transfers are governed by the Commonwealth’s enactment of Article 4A of the Uniform Commercial Code, which is a uniform set of laws designed to encourage consistency of laws across state lines. On a general level, Article 4A is less consumer friendly than the EFTA (covered in Part Two of this series). Indeed, it governs matters that Congress did not include in the EFTA: namely, most wire transfers and any fund transfers from business accounts.
But even if they are unable to proceed under the more favorable EFTA, victims of wire transfer fraud are not necessarily without legal recourse. In fact, Article 4A’s general rule is that banks must bear the risk of loss for unauthorized transfers. However, that liability can be shifted to the customer in two circumstances. First, the bank is not responsible if it can prove that the customer actually initiated the transfer or if someone else did so at the customer’s direction or with the customer’s permission. Of course, that typically is not at issue in most circumstances of transfer fraud.
Banks are more likely to seek cover using the second way of shifting liability, which deems a customer responsible for an unauthorized transfer under a set of technical criteria. Specifically, the criteria are met if the customer and bank agreed to a specific security procedure through which a transfer could be verified as being authorized by the customer, such security procedure is a “commercially reasonable” method of security, and the bank processed the transfer in “good faith.” This probably leaves you asking: “What is a security procedure? I agreed to one? When? What makes something commercially reasonable? And how can something be in good faith if my money is gone?”
Notwithstanding its technical nature, banks commonly invoke this “defense” without providing any explanation to the affected customer backing up their decision. For example, banks regularly deny relief with only a general reference to their customer agreement. This was the case with a recent Kelly Guzzo client who had their Truist Bank small business account wiped out by hackers. Inundated with vague legal jargon, customers are often left unaware of their rights under applicable law, and many simply give up.
In reality, a bank’s defense against an unauthorized wire transfer is not always as strong as they claim. Sometimes a bank customer never agreed to a security procedure. Sometimes the applicable security procedure is not commercially reasonable. And sometimes the bank simply didn’t comply with it in good faith. The rampant fraud observed at some banks is enough to call into doubt their ability to make a showing of commercial reasonableness and good faith.
A bank’s failure to comply with Article 4A may entitle a consumer or business to the amount of the loss, interest, and possibly other damages. At Kelly Guzzo, we are committed to assisting victims of online bank fraud. Please do not hesitate to contact our office to receive a free consultation on potential claims involving unauthorized wire transfers.