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Deny DC Fraud Claim if on 4th Debit Card?

The bank has a customer who is on his 4th debit card. The customer's niece lives with him, and has used his card in the past. The customer disputes the charges each time stating the charges are fraudulent and he did not authorize. When the 3rd card was ordered, the customer requested the niece pick up the card and PIN number from the bank. The branch complied (though should not have) and of course, the niece used the card to purchase tires at Walmart. The customer now wants to dispute this charge. Can we deny the claim because the customer authorized the niece be given possession of the card? He has been informed he will not be issued another debit card if this continues with the 4th card issued to him.

Answer by Brian Crow: I'm amazed that the bank allowed this to reach a 4th card. It doesn't seem worth the risk to issue a 5th.You cannot deny a claim based on the number of prior claims that a cardholder has made. If the niece was in possession of the card with the cardholder's authorization, you may deny the claim based on comment 2(m)2 to Reg E Section 1005.2.

Authority. If a consumer furnishes an access device and grants authority to make transfers to a person (such as a family member or co-worker) who exceeds the authority given, the consumer is fully liable for the transfers unless the consumer has notified the financial institution that transfers by that person are no longer authorized.

However, if the cardholder claims that the niece brought him the card and then later stole it, the transaction would be covered under Reg E and you would be obligated to reimburse the cardholder. See comment 2(m)(3) to 1005.2.

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.


Answer by John Burnett: You already know what the answer to your question is, don't you?

The customer's carelessness in allowing his niece to pick up the card and PIN can't be used against him. This is not a case in which he told her she could use the card to get $50 cash and she exceeded that limit. So you can't use the "prior authorization" concept to deny the claim.

When you get down to it, any attempt to use "negligence" as an excuse for denying the claim will, and ought to, backfire. In this scenario, quite frankly, I think the bank showed more negligence in issuing the card than the customer exhibited in asking his niece to run the errand.

Pay the claim, and don't stop with blocking future card access for this customer. He's not a customer your bank needs to have, so get rid of him.

Follow that up with a team effort at crafting a clear set of policies and procedures on controlling risk in your debit card portfolio. Include in it a statement about how many times you'll allow a customer to cost the bank money through cardholder carelessness before you shut the customer off.


Answer by Randy Carey: "The branch complied (though should not have) and of course, the niece used the card to purchase tires at Walmart. The customer now wants to dispute this charge."

If it was me, I would also just make sure to mention that the bank will be filing a criminal complaint against the niece and will also be bringing a civil lawsuit against her to collect the bank's damages.


Answer by Ken Golliher: Fool me once, shame on you. Fool me twice, shame on me.

First published on 4/22/13

First published on 04/22/2013

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