Banks given ultimatum on fraud
Commerce and Consumer Affairs Minister Andrew Bayly says if banks don’t move quickly enough to do more to protect people from scams, the Government could step in to force them.
Bayly announced the Government’s response to last year’s report by Parliament’s finance and expenditure select committee into bank consumer protections against scams which called on banks to take voluntary steps to increase protections for their customers.
The committee recommended banks improve security by introducing a “confirmation of payee” system to check that bank account names and numbers match before allowing electronic transactions to go through, a key weakness in the banking system victims say would have prevented their losses.
The committee also urged banks to update their voluntary Code of Banking Practice, and investigate introducing a voluntary compensation scheme similar to the one in the UK, where banks have to compensate customers for scam losses unless they have been grossly negligent.
Bayly said he had written to the banks to outline his expectations, including that confirmation of payee be launched by banks this year.
If banks did not update their voluntary code, which is overseen by the Banking Association, he would consider options for a regulated, mandatory code.
“Banks have a duty to act with reasonable care and skill, which includes identifying and acting on possible signs of fraud,” Bayly said.
“Where you do not act on possible signs of fraudulent behaviour, or suspicious payments, in my view, you should reimburse customers.
‘‘Bank processes need to be strengthened to give Kiwis better protections.”
Bayly’s response has disappointed victims of scams, who are calling on the Government to immediately move to pass laws to force banks to pay compensation, and to reform the Banking Ombudsman scheme.
“Banks should not have to do it voluntarily. They should be forced,” said scam victim Carla O’Neill, who was one of two scam victims to learn on Thursday that Bank of New Zealand would not oppose a Banking Ombudsman decision awarding them compensation for its failure to keep them safe. “Banks should have had confirmation of payee in place five years ago,” she said.
Banking Association chief executive Roger Beaumont said: “Confirmation of payee will start to roll out by the end of the year, and our anti-scam centre is up and running, targeting money mules.”
And, he said: “Banks will investigate a voluntary reimbursement scheme for customers who lose money in an authorised payment scam.
‘‘That may help inform any changes to the Code of Banking Practice which sets out current customer expectations for fraud reimbursement.”
Polling by Horizon Research shows the majority of people believe banks are not doing enough to protect customers from scams, and should compensate for scam losses.
Bayly was involved in creating the report as he was a member of the committee, which heard evidence from banks, victims, and Banking Ombudsman Nicola Sladden, who has called for more than a year for banks to deploy confirmation of payee, and dismayed BNZ by ordering it to pay $217,000 in compensation to a scam victim.
Since the select committee report was published in August, a lot has changed.
O’Neill is one of a group of scam victims who have together been pushing for law change and reform of the Banking Ombudsman scheme, which O’Neill said “has no clout”.
Media coverage of their experiences, including being unfairly blamed for their losses, has prompted the big five banks to come up with a response. Polling by Horizon Research last year suggested as many as 270,000 people had been scammed to varying degrees in the previous year.