Know your rights on bank account fraud

Negligence doesn't reduce consumer rights
The rules are designed to encourage consumers to feel safe about electronic transactions, says John Burnett, an editor at BankersOnline.com.

“Word from the Fed is that if someone gets hit with this then the customer has been tricked, and the transaction is unauthorized and the consumer is protected,” he said.

Even in a case where consumers are slow to report the fraud, there is protection in place.  Consumers who who fail to tell the bank when a fraud shows up on their statement face unlimited liability only for money stolen after that 60-day window closes.  Liability for thefts before 60 days is capped at $500. And since most frauds happen over a couple of frantic days, as in Horn's case, consumers generally get refunds.

“When it’s an ongoing, repeat fraud, then the customer can end up being responsible if they fail to contact the bank,” Burnett said. "But usually, they are covered."

That coverage extends even if the consumer accidentally gives away the keys to their financial kingdom, such as answering a phisher's e-mail. There are many reasons people take a phisher's bait.  Horn was under stress, and the SunTrust e-mails looked real.  A spokeswoman for the Federal Reserve said banking regulations protect consumers even when they make mistakes — even mistakes such as writing their PIN number down in a place where a crook can find it. She referred all questions to the Fed's staff opinion on Reg-E, which is posted on a federal government Web site.

“Negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E,” the opinion indicates. “Thus, consumer behavior that may constitute negligence under state law, such as writing the PIN on a debit card or on a piece of paper kept with the card, does not affect the consumer's liability for unauthorized transfers.”

Credit cards vs. debit cards
The rise of debit cards, sometimes called check cards, has increased the importance of Reg E to consumers. The distinction between credit cards and debit cards is often confusing for consumers, because they appear identical at the store checkout stand. But debit card payments are immediately deducted from a consumer's checking account, meaning fraud victims are in the position of needing a refund, rather than simply disputing a charge. It also means debit card transactions are governed by Reg E, rather than credit card consumer regulations, which are more generous to consumers.

Reg-E says consumers must be given a temporary credit within 10 days while the bank investigates the potential fraud, but many banks offer such temporary refunds even more quickly. Bank of America spokeswoman Betty Reiss says her firm usually issues such "provisional" credits within two or three days.

Still, because debit card payments are considered an electronic transaction, consumers are potentially liable for the entire fraud if it goes unreported. 

The distinction is important in cases of massive data theft, such as the exposure of 40 million credit cards by CardSystems International earlier this year, said Avivah Litan, a researcher at financial industry security consulting firm Gartner Inc.

"There are debit cards in there with the credit cards," she said. "And consumers dealing with fraudulent charges on their debit accounts have a different problem."

In Horn's case, if the criminal used her personal information to print up fake debit cards and made purchases at retail stores rather than withdrawing cash, she would face the same procedure in her quest for a refund.

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