Can Banks Shift Phishing Losses to Customers?

1sockchuck writes to mention a Netcraft article wondering who should bear the brunt of phishing costs. A group of customers with the Bank of Ireland recently had $202,000 drained from their accounts by phishers. The bank initially resisted the request to refund their money, but allowed it after a suit was threatened. From the article: "The Bank of Ireland incident is one of the first public cases of a bank seeking to force phishing victims to accept financial responsibility for their losses, but it likely won't be the last. Phishing scams continue to proliferate, as Netcraft has blocked more than 100,000 URLs already in 2006, up from 41,000 in all of 2005. Financial institutions continue to cover most customer losses from unauthorized withdrawals. But after several years of intensive customer education efforts, the details of phishing cases are coming under closer scrutiny, and the effectiveness of anti-phishing efforts taken by both the customer and the bank are likely to become an issue in a larger number of cases." So, should a bank be forced to pay back a customer who has lost money to phishers? Or is it ultimately the customer's responsibility to make educated use of technology?

I do what I can to the phishers

Whenever I receive a phishing email, I immediately capture what I can of it (including headers,) then head to the legitimate site and look for a place to report it. I do this even though I am not a customer of the bank in question. Some banks like Barclay's have easy-to-find "Report fraudulent e-mail here" links, while others seem to go far out of their way to hide any contact information at all.

The banks with the helpful "report here" links also typically have helpful auto-responders, and their sites and form letters at least make it seem like they care about security. The banks who make it hard to hear from their customers usually don't reply at all. If I were shopping for a new bank, I'd definitely stay away from those that don't have an easy-to-find contact point near the front of their site. I get the impression they do not take security or phishing threats seriously at all. They'll probably be the ones that would fight their victims.

Re:

Whenever I receive a phishing email, I immediately capture what I can of it (including headers,) then head to the legitimate site and look for a place to report it.

I used to do that about spam......in 1992. Seriously, where do you find the time?

Re:

Funny you should mention the ATM example. I, embarassingly, did exactly that. And you know what. My bank did reimburse it. Bank of America if you're interested. In the long run, they'll end up making a lot more from em and my money than the $200 the i

Re:

If you leave your ATM card in the ATM machine with the pin in, ready to withdraw cash, would you expect your bank to reimburse you?

Darn right they should! They programmed the ATM with very poor ergonomics. My bank will not give you the cash until you p

Re:I do what I can to the phishers

Call it empathy, call it preparation, call it karma. One day you will be that idiot that got fooled by a flawless scam because you didn't help strengthen the system when you had the opportunity.

That, and every dollar the banks lose, ultimately if it isn't paid for by the scammed, it is paid for by EVERYONE ELSE, in the form of fees, insurance, taxes, and service charges.

So if you don't help stop the problem, you will pay for it in one way or another.

Read your bank's TOS lately?

Many of them now say something to the effect of the customer having take "reasonable care" to protect themselves from identity theft / being hacked. If you don't, then no money back for you.

Re:Read your bank's TOS lately?

Funny story, I opened a checking account a couple of years ago and I was wondering if there was any possiblity of protecting my account by requiring all withdrawals be made at the bank or by check (No EFTs from websites, etc). Of course, this isn't possible because of the way the banking system works (banks don't send actual checks to each other, they just send the information electronicly, the same as an EFT).

The funny part is, when I asked the branch manager what could be done, he tole me, "Just don't give your account number to anyone." Basicly, he told me to never use any checks from my account, because ALL OF THEM HAVE MY ACCOUNT NUMBER! If I write a check to someone, he can then take the check, go onto the Internets, and sign up for pron using CCBill and the account number at the bottom of my check.

Thanks Mr. Manager!!

Same here

ANY suspicious mail that falls into my hotmail box (usually paypal, or ebay) I immediately go to the official sites and send them as much as I can. Usually, within an hour or so, the site in question has been taken down. If more people like us (hard core

Re:I do what I can to the phishers

At the same time, however, these fraudulent transactions were in fact made without permission of the account holder, and banks claim to guarantee protection against that.

Otherwise, I could print a book of checks for your account and write checks, and it'd be your fault for giving me the info to make that possible (even though a check is sufficient info).

The bank promises that only transactions actually authorized by you will be applied. The fact that someone has figured out how to trick the bank in to thinking they're talking to you does not imply that you authorized the transactions, although what you did might be exceptionally stupid.

Re:

The fact that someone has figured out how to trick the bank in to thinking they're talking to you does not imply that you authorized the transactions

Trick????

I'm a call center engineer for a large financial institution. Guess what they do to verify you

I say, "Yes. Yes they should."

A little tough love. Hit 'em where it hurts and maybe they'll learn. If I got scammed on the web, I'd feel like such a fool I probably wouldn't bother seeking a refund.

Re:

It isn't clear to me that you have to do anything wrong to be the victim of fraud. The banks need to come up with a method to combat financial fraud, or they need to absorb losses as the cost of doing business. Bankrupting individuals isn't the answer.

Re:

It isn't clear to me that you have to do anything wrong to be the victim of fraud.

You haven't done anything wrong, neither has the bank. How are phishing emails different than, say, somebody calling you on the phone pretending to be from your bank's credi

Re:I say, "Yes. Yes they should."

Actually, I think the pressure to improve security will eventually come from insurance and lawsuits.

Given a few large lawsuits, banks will probably have to sign up for fraud insurance. But if their insurers set their rates based on an assesors' estimate of their security, it'll be in their best interests to improve security to get the cheapest policy possible.

It's how the civil court system and capitalism are supposed to work, anyway. It may just take time (and no freakin' governmental interference by passing "tort reform" limiting the banks' liability, otherwise there will be no financial incentive at all.)

Re:

Given a few large lawsuits, banks will probably have to sign up for fraud insurance. But if their insurers set their rates based on an assesors' estimate of their security, it'll be in their best interests to improve security to get the cheapest policy pos

Re:I say, "Yes. Yes they should."

Huh ?

Should it really be possible to drain somebody's account using only their account number & routing number ? Both of those pieces of information are available to anybody you give a check to for a start. Now tell me this isn't a security issue.

Re:I say, "Yes. Yes they should."

This is not a security issue, so the banks can't improve it.

Of course it's a security issue. All I need to do to is get your account number and the banks routing number and I can initial an ACH electronic funds transfer against your account. There is no sort of security in place where you can whitelist banks/accounts for initiating an ACH against your account.

Now you might say it's the customers job to better protect their info. Well guess what. You're in line at the grocery store writing out your check. See me behind you in line talking on the cell phone? Guess what...I'm not actually on the phone. I just used my camera phone to snap a photo of your check, which contains ALL of the information I'd need to get the bank to do an ACH transfer out of your account.

Now tell me...does that still not sound like a security issue?

Re:

Agreed, but this article is in the context of phishing scams. I would argue that there's a difference between someone impersonating an individual to the bank (like the example you gave), and impersonating the bank to the individual (phishing). In the case

Re:

How are phishing emails different than, say, somebody calling you on the phone pretending to be from your bank's credit card department? If you fall for it, who should be responsible?

Not much. When a bank calls, Caller ID should show bank's name rather tha

Re:

The bank has done plenty wrong - they've allowed an unauthorized party to access your account and withdraw funds. They've cultivated a business model where financial transactions can be conducted over and insecure network without adequate identity verifica

Re:

I probably wouldn't bother seeking a refund.

Won't seek a refund for $200k loss???

Bill, is that you?

Re:I say, "Yes. Yes they should."

Two factor would make phishing harder, but what we really need is better built-in browser support for two factor auth as an extension to the HTTPS protocol.

In an ideal world, the browser supports two factor auth for access to the website via http auth, but would put up a warning that says "WARNING: Your password is being sent insecurely. (Send Anyway) ((Cancel))" if the connection is not encrypted with a properly signed cert. This authentication should require you to key in your account name, pin number, and password in separate fields and should be displayed by the browser, not as a web page that can be faked. By so doing, you basically eliminate the possibility of a phishing attack using an unencrypted channel that looks like the encrypted channel enough to fool someone into giving up the needed information.

With that single change, you have a solution that will dramatically reduce phishing attacks, as it requires the phishers to have a legitimate signed SSL cert, which means there is (in theory) a solid paper trail leading back to them. Phishing expeditions that involve SSL are very, very rare by comparison to the unsecured versions, require a much greater financial investment, are much more likely to result in a successful arrest and prosecution (because of the paper trail from obtaining the cert and the requirement that such certs are tied to a valid domain name, both of which make it harder to use hijacked machines as servers).

Unfortunately, it's a chicken and egg problem. The browser vendors probably won't add such authentication mechanisms into the browsers unless sites want it, and banking sites aren't willing to spend money on two-factor devices unless they provide a tangible benefit (and without such browser support, they really don't).

Fools and their Money 2.0

Hacking? Yes.
ID theft? Yes.
Fraud? Yes.

Phishing? Man, I dunno -- seems to me that if you get suckered into giving someone your account information, that's kind of your own problem. It's not Paypal's fault if you actually believed that the poorly-worded email you got was actually from them because it had their logo someplace on it.

On the other hand, this sort of thing could also seriously undermine the confidence that people have in online transactions and the like, so I can't help but wonder if maybe it isn't shortsighted not to just take the hit.

Re:Fools and their Money 2.0

a bank could perhaps continuously move the URLs for images on the bank's site

I like that idea a lot! Use a sessionID-named folder for any URLs that have bank logos, and any requests for logos that use an expired session ID would return an image of a stopsign with the text: "STOP - ERASE ANY PERSONAL INFORMATION FROM THIS PAGE - THIS IS A FRAUDULENT WEBSITE!!! SOMEONE IS TRYING TO STEAL YOUR MONEY!!!"

Re:Fools and their Money 2.0

Though the parent is funny, I am not sure why it got +4 Funny instead of +4 Insightful. This is EXACTLY what financial institutions should be doing!! It would work like gangbusters.

Another approach that I think would work well for financial institutions is to make it unequivocally clear that they will never never ever in a million years contact their customers by any method besides snail mail. The customer should be required to sign a sheet saying they understand this before they are allowed to open an account, and it should be the responsibility of the financial institution to make sure that the customer is TOLD this, not just handed a piece of fine print to sign. I have been using online banking at 3 different institutions for approximately 5 years, and I am absolutely sure that in that time I have never recieved any e-mail from them for any reason. Paypal on the other hand... I've gotten both legitimate email and phishers.... so I just blacklist anything with paypal in the subject or content. Sure, it means they have no way to get ahold of me besides snail mail, but they shouldn't need to.

But, perhaps I am a little too idealistic... /me sighs

Re:

Just the opposite, banks have been pushing for *more* online contact and less snail mail. I still get paper statements mailed from Wells Fargo and every time I check my account online I get a big ad page urging me to switch to paperless online statements.

No

No

If they did so, then all you'd have to do would be to set up a phishing site, be a victim of your own phishing and then be payed back by your bank.

That, and also, blah blah people blah blah stupid blah blah genetic pool blah.

"Can Banks Shift Phishing Losses to Customers?"

"Can Banks Shift Phishing Losses to Customers?" asks the headline.

Of course. The customers are going to pay for all losses; the correct question is, will banks make the individual who made a foolish decision pay for his mistake, or will they make all of the customers (like me) pay, in the form of reduced interest payouts, higher lender rates, increased fees, etc.?

You don't really think the bank is going to create money to pay for the losses, do you? Make no mistake about it--banks, like every other convenient, abstract legal fiction--don't pay for anything. Individuals pay for things.

Re:

Clearly, you've never any taken any economics classes or you learned nothing. Your statement is only true in market segments approaching perfect competition, and there are very few of those outside farming. In market segements where sellers or services

Knowing my clients

Knowing my clients, I smell a new "insurance product" ... a general "electronic age" insurance product to cover online fraud (buyer/seller problems), identity theft and now phishing. "e-Policy" or something.

My $0.02 (no pun intended)

1. It seems that the task of finding and catching phishers should be put to those best able to pursue them: the banks. If the customer is responsible for the loss, be prepared to see silly little class actions against phishers, with the only real victors being the lawyers.
2. If a bank doesn't want to be held responsible for what happens to my money, I'll do the responsible thing and move my money elsewhere.

Re:

If a bank doesn't want to be held responsible for what happens to my money, I'll do the responsible thing and move my money elsewhere

Damn - Here goes a wasted mod point, but I consider this point so insightful, I must reply.

I know people who, even in

Banks.

The problem is that the banks aren't taking appropriate steps to identify the customer before handing over the customer's money. Banks are legislated/insured to only release money to the authorized account holder. When the customer takes reasonable steps to protect their information and follows the banks security procedures they are not responsible for loss.

By putting in place technology that doesn't sufficiently protect the reasonable person from fraud the banks bring the liabilty to themselves. The reason you put money into the bank and pay fees is to prevent unauthorized persons from accessing your money and to provide insurance against such a loss. It is the banks job to put in-place controls and cover the losses that arise from insufficient controls. It is a balancing act between what the consumer wants to put up with in security and what they want to pay for service. It is the banks job to find the equilibrium between the cost of increased controls and the cost of fraud. After all it is the bank not the consumer who is offering the service of withdrawl over the internet.

A good step in the right direction might be two factor authentication.

Re:

Remember, there are only so many blocks you can put in between an idiot and his money before he gets pissed off and takes it else where.

Personally, Im all for banks charging phishing victims for the losses - many dont cover fraud resulting from the cust

incentives

If you want the party that has the most control of the security system to have the incentive to fix the problem, the bank should pay.

If you want to take away the incentive to fix the problem from the party that has the most control of the security system, the customer should pay.

Bands & Customers should exercise due diligenc

The reason why phishing attacks work is that people are fooled into giving credit card information to what appears to be a legitimate website. This could have been avoided if the customer was more careful, but then again, we all get tricked from time to time.

Now, why aren't flags raised when $30,000 is taken out of a bank account electronically from an unusual location? A phone call to the account holder would be nice.

By analogy, if someone forges a check, and signs my name, and the bank cashes that check, the bank is on the hook for the cash. Also, if someone lies about their identity, and the bank doesn't verify their identity, they are also on the hook for the check. The same should be true with online transactions.

If European banks and governments wont protect customers from fraud, online purchases will be doomed.

Re:Bands & Customers should exercise due dilig

Now, why aren't flags raised when $30,000 is taken out of a bank account electronically from an unusual location? A phone call to the account holder would be nice.

I actually know someone who fell for a phishing email. The bank called him up the next da

Its the Phisers who should pay!

FTFA: 1sockchuck writes to mention a Netcraft article wondering who should bear the brunt of phishing costs.

The rational answer should be that law enforcement should persue the criminals and put a freeze on their accounts and seek retribution in monetary and jailtime punishments.

Seriously, if we can find and freeze "terrorist" accounts, how hard is it to track where this money goes?

I mean Phishers have to get it from a bank or ATM somewhere.

Why don't the bank simply reverse the process and force other banks to freeze the accounts? What is preventing them?

How Phishing Works

You underestimate the problem. Phishing is actually a two-pronged attack -- or at least this is my experience in Australia. (Not that I've fallen victim, but I've conversed quite a bit with those that have.) The first prong of the attack is the fake bank m

not true: "morons get what they deserve"

justice must have a compassionate edge. because if justice is as brutal and swift as crime itself, it is no longer justice

so yes, the people who fall for phishing schemes are stupid. but no: they do not deserve what happened to them. the punishment they receive (losing all of their funds) is not commensurate with the mistake they made. if i get in the car with a drunk driver, i am stupid. but do i deserve to get paralyzed for life in the accident that happens for my mistake? no. so do you laugh and call me a moron or grieve at my infirmity?

whether you laugh or grieve at me is more revelatory about your own immaturity. because god forbid you ever make a little mistake in your life and suffer drastically for the consequences, right? that can never happen to you, right? yes: stupid mistakes have negative consequences. but if the negative consequences are way out of proportion to the error, you should not be so dismissive, you should demonstrate some compassion, or justice really isn't your motivation. if drastic punishment from a simple mistake happens to you, you're just going to suck it up and move on without complaining one bit, right?

well... experience teaches me that those laughing hardest at those horribly punished for simple mistakes are also those who whine the loudest when they become victimized the same way. so yes, banks should pay for phishing schemes, and everyone here shouting "you get what you deserve" are not speaking from a position of concern for justice. they are speaking from just sort of a smug hypocritical contempt for simple human fallibility. which they apparently imagine themselves immune from, out of simple ignorance at how cruel crime can be, and how fickle fate can be

Of COURSE the banks should make good

The basic way money is stolen is this:

(1) Somebody gets your account information. (Possibly through phishing, possibly just by rummaging through your mail).
(2) They wire money out of your account.
(3) They move the money someplace where it cannot be retrieved.

The problem is in step 2. The banks make absolutely no verification that a transfer is authorized. When I walk into a branch, I can't just pull money out of my account without first verifying who I am. When I write a check, the bank (at least in theory) is supposed to verify that the signature on the check matches the one they have on file. But, there is no similar verification when my account is electronically drafted.

The banks are basically betting that they'll lose less money through fraud than it would cost them to implement security on the back end. It's a calculated risk on their end. If their customers had to pay for the fraud, there would be NO incentive for them to improve security.

Incidently, the comment that "the customers pay for it anyway" is only partially right -- customers pay for part of it through reduced interest rates and so on, but some of it also comes out of the bank's profits. Banks are generally in a competitive market and as long as there are alternatives for savings (e.g. brokerage houses), the market dictates the interest rates paid by the bank.

Bank of Ireland has extremely bad security!

I'm an account holder with Bank of Ireland, and have had several accounts with Dutch banks. ALL Dutch banks use two-factor authentication when making payments, either with a digital "calculator" device or a list of passwords, where for every payment a different password is requested, and the list renewed when it has been used up.

Bank of Ireland, on the other hand, uses just a lame 6-digit password, your contact phone number and a 6-digit account number. Very lousy security there. I definitely don't feel safe using their internet banking facilities. Even 8 years ago my Dutch bank modem service already used 2-factor auth.

So, yes, I feel that in this case BOI is completely to blame for this.

Advertising

Phishing seems to be good advertising for banks. I'd never heard of Fifth Third Bank [53.com] until I was suddenly getting 5 phishing e-mails a day for it.

yes, it's the bank's problem

If someone forged your driver's license and went to the bank to withdraw your money in person, it's the bank's fault for giving it to them. Same principle should hold for online transactions. If the bank gives the wrong person your money, it's not your problem.

If the liability moves to customers, the banks won't have any incentive to improve security. Worse, the bank will start blaming you for breeches that are completely their fault. The bank will claim you didn't protect your password when their systems are comprised and your account is drained.

The bank is in a better position to do something

The bank has motivation and resources to implement a solution, whereas individual customers do not. This is because banks control the technologies that phishers emulate in order to con their targets.

For example, the company I work for is concerned about phishers stealing user accounts, by emailing links to pages that look like our corporate signin page (used for many properties in many locations, so commonly encountered on various sites by our employees.) As individual users, it was extremely difficult to tell whether the page being logged into was legitimate or not; so, the company now uses a cookie to identify you as an employee, and embed your picture (from the company's internal records) into the login page. If there's no picture of you, it's not legitimate.

Is that foolproof? No, because other employees could get your photo and fake the login page. It certainly narrows it down to internal employees and contractors, however, and it's a step that individual employees could never have taken on their own.

Similarly, imagine if ATM cards didn't have PINs, and possession of the card was enough to withdraw money from remote locations. Individual users couldn't do much about this, other than hold onto their card for dear life, but the banks could easily implement PIN codes so that theft of the card did not automatically enable theft of account monies.

Again, is that foolproof? No, because some people write their PINs on their cards (duh) and some people manage to set up "fake" ATMs to collect card swipes and PINs. However, banks now use the unique identifier on the card to access the customer's name and display it before the PIN is punched -- no name means you probably shouldn't use the machine. Again, another step (still not foolproof) that individual users couldn't enact on their own.

If a bank makes a service available, they are the ones in good position to improve the security of that service, and at some point the bank actually hands over the money based on their own assurance that the person using the service is who they say they are, using whatever method the bank provides. All of this is up to the bank, not the user, and so they should carry the liability -- if not, they can always opt to avoid providing those services that they cannot successfully protect.

Does this absolve the users of all responsibility? No, but there are still lots of stupid things users can do -- and shouldn't -- that cause them to lose money that the bank doesn't -- and shouldn't -- have to reimburse.

I guess you can think of it like this: if a bank's machine gives out money to the wrong person, it's the bank's fault -- and if the bank's machine gives out money to the right person, who is then mugged within half a second of the transaction, it's the user's fault.

We ALL have to take responsibility

Financial institutions have the responsibility to protect us from unauthorized access to our accounts. It should then be the burden of the institution to show that the account holder was at fault.

However, We ALL have to take responsibility

As a consumer,
1) never enter personal information in response to e-mail initiated requests, etc. 2) report suspicious emails, websites, etc. 3) Use common sense (nevermind, that'll never work)

As for the banks,
1) Provide security measures to reduce chances of phising losses; while authentication is not perfect, it's a decent start (althoug I find it pretty annoying) 2) Educate their customers 3) Need to offer an easy, user-friendly way to report phishing (PayPal does a good job of this) 4) Make their policies clear; if they won't cover losses due to phishing attacks, we should know before putting our money in their hands 5) If they can't sustain the losses, then they need a new business model; what do banks do with those $30 fees that they love to ambush everyone with

Now the Government,
1) NEEDS TO PROSECUTE OFFENDERS by enforcing existing laws; it's amazing how apathetic the authorities are towards identity theft, etc. 2) Ensure laws are adequate for protecting consumers and prosecuting offenders 3) Educate the people

Bruce Schneier gets it right again...

In a Wired article from last year [wired.com], Bruce Schneier said some very sensible things on this subject:

Push the responsibility -- all of it -- for identity theft onto the financial institutions, and phishing will go away. This fraud will go away not because people will suddenly get smart and quit responding to phishing e-mails, because California has new criminal penalties for phishing, or because ISPs will recognize and delete the e-mails. It will go away because the information a criminal can get from a phishing attack won't be enough for him to commit fraud -- because the companies won't stand for all those losses.

I think this is absolutely right. Faced with the financial losses of phishing, banks will simply institute procedures, technologies and processes to protect against fraudulent financial TRANSACTIONS. Doubtless, banks will gripe and complain about their new liability. But it was exactly this same liability that made personal credit cards viable - and gave birth to a multi-billion dollar industry.

-Sean

Bruce Schneier obviously isn't in financial IT.

As someone who does work in the systems of a top-10 US card issuer, I can tell you we lose over 3 million USD to fraud every MONTH. And the company I work for is nowhere close to being the biggest! (The top couple of banks are separated by a decimal plac

Re:

As much as America funds other governments, I don't think Uncle Sam should pay for Ireland's banking debts. Maybe the banks in the FDIC...

Re:Maybe...

Well, I can think of some. For example, a friend of mine got his debit card copied. He couldn't have prevented it, Arco got their computer systems compromised and all the debit-card numbers and PINs used at their at-the-pump readers stolen, and he happened to have used his card at an affected Arco station. But the bank could've easily stopped his account from being emptied. He'd made a card-present, ID-presented, signature-obtained transaction in San Jose, CA. 4 hours later, his card was used at an ATM in Thailand and his account emptied in $100-200 increments, it took quite a few transactions to completely drain his account. Now, any basic security profiling should've raised red flags: he's never used his card outside the US, these are cash withdrawals in a country that's known as a source of financial fraud, and it's physically not possible for a person to have gotten from San Jose to Thailand in 4 hours. All the bank would've had to do is refuse that first ATM withdrawal with a message to contact his bank and that would've been the end of the theft before it began. But they allowed all those transactions without questioning them. That's definitely not reasonable care on the part of the bank.