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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 $300K came out of the account in small transactions over 15 months. The bank offered no recourse except to open a new account, a large hassle given that the account is more than 20 years old and its holder writes a thousand checks a month. The article details how the spread of electronic settlements between banks has given rise to growing automated clearing house fraud — if anyone gets hold of the magic combination of account number and bank routing number, and once has permission to withdraw funds, all bets are off. Banks are unlikely to question future withdrawal orders. Moral of the story: go over your bank statements line-by-line every month, and question anything that looks funny.
Why are not banks responsible for fraud?
Is it not the bank's responsibility to maintain security and keep secure transactions?
Then... Why the limitation of 50k$ when FDIC covers 100$k ?
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....
The only information you need to withdraw funds from a checking account is printed on every check. Getting a copy of a transaction history and planning transactions that blend well certainly will be harder.
Thats correct.
I trawl through your trash looking for checks (photocopies or voids, it doesnt matter).
All I need is your routing number and checking acct number. Even the routing number can be obtained by calling the bank and asking for it. It's nearly public knowledge.
The only tricky thing is the requirement of ACH access. One could "pay via e-check" by getting the 2 chunks of information and forge them. There's not a damned thing that can be done about that. Once it hits an approved ACH dealer, you're screwed out of your funds.
I have ACH blocks on my account.
The bank's responsible for 100% if you catch it within 60 days of the transaction. This guy did not piece together what had happened until 15 months after the first transaction.
I use Quicken to take care of my finances. Every day, I enter in every check or debit transaction I made that day. Then, I download transactions from my bank online, usually every morning. If there's a transaction that doesn't match up to something I've already entered, I can see it immediately. This allows me to not only easily spot fraudulent transactions, but also allows me to keep an eye on how much money I really have available, regardless of what the bank says.
Now granted, I only have a couple of accounts and I'm not writing thousands of checks a month, but it seems like this method is easily doable for most people. It's a lot easier to spot fraud if you have a good handle on what's supposed to be there and what isn't.
Also, I'm not really shilling for Quicken or anything...there are plenty of other products that will allow you to manage your money in basically the same way, including the online update component (which is the big key for me).
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!
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.
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
http://ed.markovich.googlepages.com
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?
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.
If you mod me Overrated, you are admitting that you have no penis.
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.
paintball
And a retail bank statement is kindergarten arithmetic compared with the monthly statement for a private banking client.
I used to have a Credit Suisse account, and they did, indeed, have incomprehensible statements, even for a simple situation. They had a "current account" and a "time account". The current account didn't pay interest, but the "time account" did. Interest from the time account went into the current account, and when it exceeded US$1000, it was moved to the time account in multiples of $1000. Separate statements were provided for each account, on different schedules, didn't mention what was happening in the other account, and were difficult to match up. Lots of weird fees, too, including charging commissions on their own time deposits. It all seemed to be about fee maximization.
And this was without doing much in the way of transactions on the account. If you did lots of transactions against accounts like that, it would be really tough to track what was happening. The combination of inter-account transactions and differing statement cycles confuses the issue.
This allows me to not only easily spot fraudulent transactions, but also allows me to keep an eye on how much money I really have available, regardless of what the bank says.
Great. So, like this guy did, you go to your bank with your QuickBooks or whatever, showing that you should have substantially more money than you do, and the bank tells you to go soak your head, they're the bank goddammit, and there's no way in hell that your accounting could be more accurate than theirs.
You know, like they told this guy. Then what the hell do you do? Apparently you can go fuck yourself, since according to the laws the banks purchased, they can hand out your money to anyone that presents trivially falsifiable certifications, and there's not a damn thing you can expect them to do about it.
This guy went every month to the bank with evidence of funny business, and they told him that he must be running the numbers wrong, and then handed him balance statements that obfuscated the transactions.
Sure, it's prudent to keep track of your own money. But what about when you've kept such good track of it that you realize some is missing? What the hell are you supposed to do then? I don't think Quicken has a form for that.
I never have frustrations, the reason is, to wit:
If at first I don't succeed, I quit!
Or you could just compare expected balances.
He did. He called to complain several times and was told that there was nothing wrong.
But the account holder has some responsibility, wouldn't you agree? If someone is siphoning money out of my account for 15 months, I'd definitely notice and report it in the first month.
Actually, you probably wouldn't have clue #1. Especially not the first month.
If you RTFA, you'll see why. Private banking statements are really hard to read if you're not used to them. Hell, they're hard to read even when you are used to them.
After my wife and I got our first statement, we had to go into our private banker and ask for a lesson on how to read the thing, and my wife and I are not financially illiterate. I am an economist, and my wife works for a bank developing new products. So if the two of use couldn't make heads or tails of the thing, then it's to be considered hard to read.
At this point, I can understand them, but they are a pain to read, so I don't read them as closely as I should. I'm not worried about the above happening to me because I don't pay any bills out of my managed portfolio, and I don't have a personal account at the private bank. If ACH debits started coming in, my banker would be all over it.
What I do not understand about JPMorgan's behavior is the following:
I cannot relay to you just how shocked I am that JPM would treat this guy so poorly. I don't use JPM, so I can't comment on their private banking division, but my banker has done everything in his power and then some to keep us happy. To allow a high net worth client to be victimized by fraud at all is just nuts, and to turn around and tell him he's just screwed... unheard of.
They don't grade fathers, but if your daughter's a stripper, you fucked up. --Chris Rock
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.
They don't grade fathers, but if your daughter's a stripper, you fucked up. --Chris Rock
... that or just paying somebody monthly to keep track of it all.
Credit cards can help a lot. You don't use your bank account to make purchases, you use your credit cards to make purchases, and your bank account to pay your creditors. This does a couple things:
1) It reduces the amount of transactions to and from your bank account to just a few, rather than everything you do. Things like your mortgage payment(s), car payment(s), and of course payments come from your bank account. Just about everything else is on a credit card. Thus fraudulent bank transactions are much easier to notice.
2) It allows you to group transactions, if you wish. You can have multiple cards and use them for only certain things. For example you could have a "bills" credit card that is only used for paying recurring monthly bills. Again, can help make tracking fraudulent charges easier since you know what kind of activity to expect on the cards.
3) Credit cards change the problem of possession in the case of fraud. With a bank account, you have had the money taken away from you, and are asking the bank to give it back. If they don't, your only recourse is to haul them to court. With a credit card, nothing has been taking from you. The bank is saying you owe a certain amount, and you are contesting that. If you refuse pay, they have to take you to court.
Seriously with a bit of work it shouldn't be hard to keep track of your financials these days, especially with instant access via the Internet. Now I can understand that some people do a whole lot of stuff and thus have more complex financials but that's fine. As you say, if they've gotten to the point where you can't handle them yourself, you need to hire a professional to do so. Just as corporations have accountants to do that, so do individuals with complex financials. However for 99.99% of people, that's not necessary. If you use the tools available to you (such as online access to your statements) it shouldn't be a problem to manage your money.
Seriously with a bit of work it shouldn't be hard to keep track of your financials these days, especially with instant access via the Internet.
You've obviously never seen a private banking statement. For fun, I pulled out my July statement. There were 3 actual transactions on it (not dividend/reinvestment), and the statement was 40 pages long.
These statements really scream "DO NOT READ ME". I'm just sayin'. (Yes, I read and understand my statement, but I can fully sympathize with those who cannot. I needed my banker to go through the first one with me page by page just to understand the thing, and I do not consider myself to be an idiotic or financially illiterate person.)
They don't grade fathers, but if your daughter's a stripper, you fucked up. --Chris Rock
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.
Someone stole my mail, then charged their utility bill on one of my checks. The utility (MLGW in memphis) offered to pay me, but I want someone in jail. I will take this further. Moral, find a passbook-type account for savings, not one with checking attached. The checks are where they steal!