Too Easy For Bank Accounts To Spring a Leak 208
The NYTimes has a cautionary tale of automated clearing house fraud. Parties unknown siphoned money from an individual's bank account. Nothing too unusual there, except that it was an elite private banking account at JPMorgan Chase, and the account holder is out $250K — the bank will only cover $50K of his loss. The $300K came out of the account in small transactions over 15 months. The bank offered no recourse except to open a new account, a large hassle given that the account is more than 20 years old and its holder writes a thousand checks a month. The article details how the spread of electronic settlements between banks has given rise to growing automated clearing house fraud — if anyone gets hold of the magic combination of account number and bank routing number, and once has permission to withdraw funds, all bets are off. Banks are unlikely to question future withdrawal orders. Moral of the story: go over your bank statements line-by-line every month, and question anything that looks funny.
Well... Why? (Score:5, Insightful)
Why are not banks responsible for fraud?
Is it not the bank's responsibility to maintain security and keep secure transactions?
Then... Why the limitation of 50k$ when FDIC covers 100$k ?
Moves (Score:2, Insightful)
Magic numbers on every check.... (Score:5, Insightful)
Ummm, you do realize that's on the bottom of every check that you write (in MICR [wikipedia.org]). That's how your check gets matched up to your account for processing....
Re:Moves (Score:3, Insightful)
Re:Well... Why? (Score:2, Insightful)
I'm sure these were as far the the bank could tell proper and secure transactions. The issue here is that the account holder didn't notice for 15 months!
The FDIC protects you from bank failures, not something like this.
Bottom line: being wealthy does not absolve you of the duty to balance your checkbook. Do that every month and you'll catch that sort of thing in plenty of time to get a full refund.
Re:Magic numbers on every check.... (Score:3, Insightful)
Yes; if you never write me a check, or provide me with your account information in some other way, then I can't steal all your money.
The only form of authentication on a check is your signature. Electronic funds transfers don't have that.
Indeed. (Score:5, Insightful)
A bank account is a loan to the bank in exchange for money or services. If the bank is defrauded out of some money, why is it the account holder who loses out?
If someone claims to be my bank and tricks me into giving them $200, can I deduct that amount from my next car payment?
Really think about what has happened here. Person A loans Person B $100. Person C tells Person B that Person A owes them $100, so if Person B pays Person C $100 everyone will be square. Person B obliges not realizing Person C is lying. Is Person A the one out $100?! He had no control over the actions of Person C or Person B!
Re:Well... Why? (Score:2, Insightful)
If you read the article... The customer had 60 days (as required by federal law) to report the suspected fraud. Basically, the man did not pay attention to his statements. He does say that he was not aware of the 60 day rule. Banks send out updated customer agreements all the time. The account was 20 years old. I suspect he was unaware of it because he never scrutinzed his agreement, the same way he never scrutinzed his statements.
Re:scary (Score:3, Insightful)
Banks allowing automated withdrawals are standard here too in the Netherlands (although you can block automated invoicing for your account all together). The companies keep your admission slips and only have to reproduce your admission when you challenge a payment (in time).
There should obviously be an automated system where you yourself can allow automated invoicing for specific accounts and for specific maximum amounts ... but there isn't. All the banks have are some heuristic automated checks to make sure everything is above board, if you manage to evade both those checks and no one challenges your invoices for the time you need to siphon away the money and collect it you are homefree.
Checks suck (Score:4, Insightful)
We just had a story on automatic bill pay where I voiced [slashdot.org] my support for credit cards over writing checks. This story supports that:
First, if someone defrauds your credit card, you're not liable. Dispute the charge and you're done, the onus is then on the merchant to prove the validity of the transaction. With cash accounts, once the money is gone, it's gone.
Second, checking accounts are difficult to reconcile as can be seen from the linked story. The person in question despite being financially sophisticated, was not able to be SURE about what his balance should be. Because the checks settle out of your account at the timing discretion of the recipient of the funds, it's not possible to say what your balance on any given day should be, which makes it hard to spot problems as they occur.
While the Guy (hah) in the article probably cannot avoid writing many checks due to his business, the fewer checks an individual writes the easier it is to keep track of one's balances. As long as you have the discipline to not abuse your credit card, it's the way to go.
-Ed
Re:You left the important part out.... (Score:3, Insightful)
No, he didn't. What's to stop someone from claiming to have authorization? Think a minute. When was the last time, when paying by automatic debit from your account (e-check), you told your bank that the merchant had authorization? You didn't. You told the merchant he had authorization, but the bank is simply trusting that he does. So what exactly stops a fraudster from claiming he's got authorization too?
Re:Indeed. (Score:3, Insightful)
Yes, but in this case Person B tells Person A about the transfer to person C, in the form of a printed statement.
Person A acknowledges the correctness of the written statement by failing to report an error after Person A has examined it.
The banking laws give Person A a legal obligation to take due care in examining the statement within 30 days. If there was an unauthorized ACH transaction, it may be reported within 60 days time, which is ample opportunity for Person A to rectify the situation.
In this case the fraud was over 15 months, right? So there would have been a good number of statements with transactions on it that Person A did not authorize.
Re:It's easier than that. (Score:4, Insightful)
There's a big difference between "your records don't agree with mine" and "this transaction, right there, was not authorized by me and does not appear in any of my records". This fellow did the former but apparently never got as far as the latter.
Not true... (Score:3, Insightful)
To your second point, I agree. Someone who has so much money that they don't notice an average of $20,000 per month missing from what is apparently a very active account should probably hire an accountant. For that much money you can get a very good one and apparently still have enough money left over that you will come out ahead.
*IF* you happen to be stolen from. If you're not unlucky enough to be stolen from, then the accountant to watch your account is a waste of money.
Since the odds you become a victim are probably in the single-digit percentile (or less), paying for the accountant would be a bad investment. It would be cheaper to buy some sort of insurance.
It's a classic case of where paying for the losses is less expensive than preventing the losses, especially when the cost of the loss is spread around everyone at risk of loss.
Re:Well... Why? (Score:4, Insightful)
If you have that much money, eight hours per month to keep it seems reasonable.
Re:Well... Why? (Score:4, Insightful)
Re:Well... Why? (Score:5, Insightful)
that's easy to say when you're not writing a thousand checks a month.
and the fact of the matter is, he didn't issue or authorize the account transfers that he's being charged for. so why should he have to pay for fraud? is there a clause in his banking contract that says "the bank is allowed to give away your money without your consent as long as we list the transactions in your monthly statement?"
Retail vs. Private banking (Score:4, Insightful)
And I don't understand how a statement can be "complicated". For each transaction, there is a line. There is an amount, and a name of some kind that tells you what it was for.
That is because you are a retail banking customer.
Private banking statements are incredibly complex. I should post one of mine just so you can see. I can see how if you did a lot of transactions (I don't), it would be impossible to have clue #1 what the hell was going on. Truly. And I am an economist.
Personally, I have a manged portfolio at a private bank, but my day-to-day transactions are in a retail bank account for precisely this reason. My banker once asked me why I didn't take advantage of their transactional accounts and I told him because it would make my life too complicated.
The guy in the article, frankly, should have had a bookkeeper, and that bookkeeper should have known what was up.
or a professional (Score:5, Insightful)
... that or just paying somebody monthly to keep track of it all.
Ok so (Score:3, Insightful)
Is someone forcing you to use a bank with statements that complex? Seems to me there's a lot of choice in banks out there. If you bank has statements that are too complicated, get a different bank. Now supposing that you have an extremely large amount of assets and for whatever reason necessitates the use of such a bank (as a note I know a couple of multi-millionaires, all use regular banks) then maybe you need an accountant. When things get complicated, you hire a professional. My parents own a small business, and though it doesn't do a whole lot of sales (less than a million dollars a year) it is extremely complex, as business tends to be. So, they have a book keeper. Her job is to deal with all the money and make sure things all add up.
It is like with any sufficiently complex system: If you can't deal with it yourself, hire someone who can. I feel particularly little sympathy given that the whole reason for being with a "private" bank in my understanding is because you have a lot of money. Ok, great, if you have a lot of money, you can:
1) Spend the time and effort to learn what you need to to manage it yourself. Yes, this is complicated. Nobody ever said making lots of money was supposed to be easy.
2) Hire someone to manage it. After all, you have money. Spend some of it to help you make more.
3) Go for simple investments. Nobody says you have to invest in complex things. Have a certain amount of operational overhead in a checking account, some more reserve overhead in a high interest savings and/or CD, and the rest in an index fund. No, you aren't going to make the massive returns that some of the creative schemes out there can. However the tradeoff is that it will be extremely easy to manage yourself.
I just don't feel much sympathy for people with lots of money that won't do what is required to deal with their money. With the kind of money this guy has, he should have a personal accountant who's job it is to keep track of it all and make sure everything is on the up and up. I know people like this, they live, breath and dream numbers. They are extremely good at dealing with things like this. Hire one of them.
To me it sounds like he just kinda got lazy. Not a lot of sympathy in that case, especially since he should have known better.
Re:or a professional (Score:4, Insightful)
Indeed. Perhaps some kind of company with expertise in financial matters. One with experience in keeping peoples money and valuables safe.
Something like a bank really...