Victims of Bank Fraud: Who’s on the Hook?

The head of the Royal Bank of Scotland came under fire this month for saying bank fraud victims shouldn’t expect automatic refunds. But the comments made by CEO Ross McEwan, essentially blaming consumers for being careless with their PINs and passwords, are already in line with how some Canadian banks handle consumer fraud claims.

Take the case of a Winnipeg couple who made news last week, after Walmart Bank Canada refused to reverse $6,600 in fraudulent credit card charges.

According to reports, the couple’s credit card was stolen while they were on vacation in Mexico. Trouble is, whoever took the chip-embedded card apparently used the correct four-digit PIN when making the fraudulent purchases. The bank’s credit card agreement states no refund will be issued if a PIN is used — even if it’s used by thieves. According to the bank, it’s up to consumers to protect their PIN codes; therefore, it is not at fault.

In this case, it isn’t clear how the pickpocket obtained the PIN code. He may have watched the couple enter the code while making a purchase earlier in the day, or it could have been obtained through a “skimmer” — a counterfeit card reader that scammers swap out with an ATM or other legitimate card reader in order to steal data from the card’s magnetic stripe.

In other cases, however, Canadian banks have rejected fraud claims because a customer chose a PIN it deemed too easy to guess. Last winter, for example, Scotiabank denied a Toronto woman’s credit card fraud claim because she used part of her birth date as her PIN, Global News reported. The bank’s cardholder agreement stipulated that clients should not use a PIN based on their name, date of birth, telephone number, bank account number, address or social insurance number.

Similarly, the Canadian Office of Consumer Affairs advises that debit card users may be liable for losses if they:

• Write their PIN on or near the card
• Keep a “poorly disguised” copy of their PIN near the card (e.g., “Bank-1286”)
• Choose a PIN selected from their name, telephone number, date of birth, address, or social insurance number
• Voluntarily give their PIN to someone who later contributes to the fraud
• Fail to notify their financial institution, as soon as they are aware, that the card has been lost, stolen or misused or that their PIN may have become known to someone else
• Fail to cooperate in the investigation of the loss

Bottom line? Read the cardholder agreement carefully to see what you — and your clients — are covered for in the case of fraud. And, from a financial planning point of view, consider your debt management plan in conjunction with financial security. Perhaps you don’t need as many credit cards to oversee as you have. 

Finally, a tip for tax and financial advisors who work with immigrants to Canada: be sure to let them know about this issue as your way of extending a caring value proposition.  

Additional Educational Resources: 
Debt and Cash Flow Management Course
Fall CE Summits

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