Reg E Claim Denied on Friendly Fraud?
Answer by Randy Carey and John Burnett, BOL Gurus Guru Bio
Question: Can a Reg E claim be denied to friendly fraud? A friend takes the card and uses it to withdraw cash from an ATM or makes a purchase. The customer knows who made the transactions, but doesn’t want the bank or police to arrest the individual. Does the bank have the right to deny the claim and if provisional credit was given, reverse it?
Answer by Randy Carey: They either make a claim of unauthorized transactions or they don't. If they are going to make the claim, then you would be required to provide them the relief (refund) as prescribed by Reg E. Once they make the claim, the decision on pursuing the prosecution of the friend is made totally by the bank and the customer has no say in it, as it is now the bank's loss. This is the way that I would portray it to the customer and he or she can make the call. The customer can't have it both ways, get his or her money back and the friend gets off Scot-free.
Answer by John Burnett: If you believe that your customer was somehow connected to the transactions, either he or she received some benefit from the transactions or conspired with the thief then you can deny the claim. If you have evidence that your customer conspired with his or her friend to try to defraud the bank, you can, if you wish, not only deny the claim (and, I trust, close the account), but also contact federal (or state, in many cases) law enforcement concerning an attempt to defraud the bank.
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