Too Easy For Bank Accounts To Spring a Leak

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.

Comments

Well... Why?

[Creepy Crawler]

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 ?

Re:Well... Why?

[lysergic.acid]

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?"

Magic numbers on every check....

[mangastudent]

if anyone gets hold of the magic combination of account number and bank routing number

Ummm, you do realize that's on the bottom of every check that you write (in MICR). That's how your check gets matched up to your account for processing....

Indeed.

[xstonedogx]

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!

Checks suck

[ed.markovich]

We just had a story on automatic bill pay where I voiced 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

or a professional

[phorm]

... that or just paying somebody monthly to keep track of it all.