Dive Brief:
- Lawyers for Citi again asked a federal judge Tuesday to dismiss a lawsuit New York Attorney General Letitia James filed against the bank in January, alleging it fails to protect consumers from fraud and refuses to reimburse victims.
- James is trying to rewrite the Electronic Fund Transfer Act through “litigation rather than legislation,” Julia Strickland, a partner at Steptoe, told Judge Paul Oetken of the U.S. District Court for the Southern District of New York, according to Bloomberg.
- James asserted in her suit that the EFTA requires Citi to reimburse victims of fraud because the bank makes wire transfers available to consumers online and through mobile banking apps. Citi, however, maintains the EFTA applies to consumer-initiated electronic fund transfers, including ATM transactions, but not wire transfers. Those are covered by Article 4A of the Uniform Commercial Code, the bank argued. Citi asked a judge in April to dismiss James’ suit because it targets the wrong law.
Dive Insight:
The case centers around what happens when money leaves a consumer’s bank account without their authorization or, in some cases, their knowledge, Christopher Filburn, a lawyer for New York state, told Oetken.
“We have heard from consumer after consumer” in the wake of the January suit, Filburn said, according to Bloomberg.
Strickland, though, argued that when a consumer is deceived into following a criminal’s instructions to transfer money, “that’s not a Citi issue.”
“It’s a consumer issue. It’s very unfortunate,” Strickland said. “Citi and the banking industry are not in any way the bad guys here.”
James wants Citi to document all denied customer claims from the past six years that were tied to unauthorized payment orders and debit authorizations. She also wants the bank to reimburse victims, pay a $5,000 fine for each instance in which it violated the law and adopt enhanced anti-fraud defenses.
A Citi spokesperson told Reuters the bank “closely follows all laws and regulations related to wire transfers and works extremely hard to prevent threats from affecting our clients and to assist them in recovering losses when possible.”
Strickland said big banks use multi-factor authentication and multiple layers of fraud detection to defend against scams, and that the attorney general is “well aware that Citi is on top of this issue.”
The number of fraudulent transfers that go undetected is “minuscule” compared to the volume of legitimate payments that are processed, Strickland argued.
“The idea that some scams get through is unfortunate, it happens,” she said.
But what James is asking, in terms of how it would affect the EFTA, would “abruptly and dramatically upset how banks have organized their policies and practices for decades,” the bank wrote in a filing.
