Tuesday, February 4, 2014

In online banking, consumers are better off than businesses

No system can prevent 100% of fraudulent activity, and online banking is clearly subject to fraud. According to this 2010 article, businessman Fan Bao and businesswoman Cathy Huang found this out the hard way. Their bank, Bank of America, noticed two unusual wire transactions to Croatia, but Huang was out of the country and Bao was not an "authorized agent" on the bank account. By the time Huang was able to reach the bank, the first of the two transactions - for $50,000 - had already gone through. As far as the bank was concerned, that money was lost.

But wait a minute, you say. Aren't people only liable for $50 in fraudulent charges?

It depends upon the type of people you're talking about. Real people - consumers - are treated better than fake people - corporations:

Business accounts are regulated by the commercial code. The commercial code puts the onus on the customer, not the bank, in some disputes. Personal online banking accounts (and debit card transactions) are covered by Regulation E--a.k.a. the Electronic Funds Transfer Act....

My summary would be this: With a personal account, you're only liable for $50 in unauthorized charges, unless you fail to report the charges promptly. Your losses can be as high as $500 if you fail to report the fraud within two days of learning about it, and can be unlimited if you don't report the fraud within 60 days of getting a statement (unless you've been out of the country or in the hospital).

But since the fraud was committed on the corporate account of ZICO USA, Bao and Huang were forced to prove in court that the fraud WAS committed on the bank's end. The bank required the couple to prove that their own computer hadn't been hacked.

I wasn't able to discover how the lawsuit was resolved, but I wonder if Bao and Huang are all that excited about online banking any more. The couple claimed that Bank of America encouraged them to bank online, saying that it was safe.
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