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#2280356 - 01/26/23 11:52 PM Reg E - Authorized per Fraud Center
Shannon R Offline
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Joined: Jan 2022
Posts: 24
We have a client stating two transactions are unauthorized because he got an email claiming to be from Paypal to approve a request to transfer bitcoin. The client called the number on the email and spoke to the scammer. He was asked for his login credentials and his debit card information stating it was so the scammer could check for more fraud. He then had unauthorized charges on his debit card to a company in Dubai. One transaction and one is an international fee.

I found when reviewing the debit card the first Dubai transaction for the same amount and same company was declined because the fraud center blocked it due to a high risk rating. Per the fraud center they texted the client and the client responded to their text message “no fraud.” Due to this response, the transactions the client is disputing were able to go through.

Since the client responded “no fraud” for this transaction which is why the transaction went through can we deny the case? If the client hadn’t responded no fraud these transactions in question would not have been able to go through and there wouldn’t have been any fraud. It appears he wanted the transaction to go through by claiming no fraud but is now changing his story to say it was unauthorized.

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#2280359 - 01/27/23 01:06 AM Re: Reg E - Authorized per Fraud Center Shannon R
rlcarey Online
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rlcarey
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Galveston, TX
Since the client responded “no fraud” for this transaction which is why the transaction went through can we deny the case?

No. But the question is did he authorize those specific charges or not. If he did not, no matter what he texted, they were not authorized.
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#2280360 - 01/27/23 01:29 AM Re: Reg E - Authorized per Fraud Center Shannon R
BrianC Online
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BrianC
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Illinois
Classic example of an access device obtained through robbery or fraud as noted in the commentary to 1005.2(m) and the CFPB Reg E FAQs.

A consumer does not sign away their Reg E protections by responding incorrectly to a text message.
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#2280390 - 01/27/23 04:32 PM Re: Reg E - Authorized per Fraud Center Shannon R
Shannon R Offline
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Joined: Jan 2022
Posts: 24
Thank you for your help. This transaction was listed in the original fraud alert for the client to verify if he authorized it or not and he did click the link saying it was authorized.

If we ask the client if he clicked the link after seeing this transaction trying to come through and saying yes, it is authorized would that be enough to show his intend was for this transaction to post and that he did in fact authorize it?

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#2280391 - 01/27/23 04:39 PM Re: Reg E - Authorized per Fraud Center BrianC
Shannon R Offline
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Joined: Jan 2022
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Thank you. If the client states they clicked it was authorized on purpose would that be enough proof he authorized the transaction? The transaction was listed for review on the text alert and he marked as approved. The client didn't report this transaction as unauthorized until days later after the fraud alert. 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.

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#2280395 - 01/27/23 05:02 PM Re: Reg E - Authorized per Fraud Center Shannon R
BrianC Online
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BrianC
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Illinois
Quote
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) “Unauthorized electronic fund transfer” 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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#2280396 - 01/27/23 05:15 PM Re: Reg E - Authorized per Fraud Center Shannon R
rainman Offline
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rainman
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In most cases, fraud texts are for transactions that have already been declined. So the customer might be saying that they authorized the declined transaction. That is different from a text saying "this transaction for $123.45 to ABC Company is pending - do you authorize it?"
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