I am just trying to see why the liability would lie on the bank when we did the due diligence of sending a fraud alert and blocking the transaction if the client is the one that allowed it to go through.
Bottom line, because Reg E says so.1005.2(m) â€œUnauthorized electronic fund transferâ€ means an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.
Commentary to 1005.2(m)
3. Access device obtained through robbery or fraud. An unauthorized EFT includes a transfer initiated by a person who obtained the access device from the consumer through fraud or robbery.
Was the customer negligent in responding to the fraud alert? Sure. But the commentary to 1005.6(b) notes we cannot use negligence as a reason to increase the consumer's liability.2. Consumer negligence. Negligence by the consumer cannot be used as the basis for imposing greater liability than is permissible under Regulation E. 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. (However, refer to comment 2(m)-2 regarding termination of the authority of given by the consumer to another person.)
The fact that it took the consumer a week to figure out they had been scammed and provided their access to device to the scammers which resulted in them responding incorrectly to a fraud alert does not change the fact that the consumer did not initate the transfer and did not benefit from the transaction.
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