Suspect payments – when should a bank say no?
Article written by Jason Costain on Javloc
Scams – when is it ok for banks to say “no” to a customer payment instruction?
The story attached ⬇️ is a good case study of the challenges faced by banks when it comes to following a customers payment request.
Although this appears to be a very difficult scenario for the bank, it boils down to a simple choice of balancing the following two risks:
1. Risk that a customer loses $250,000 to a scam (and maybe the bank is somehow found liable later down the line?)
vs
2. Risk of litigation or reputational damage from a customer who incurred losses because the bank refused to follow their payment instruction
(In many countries, it is “technically” illegal for a bank not to follow a customers payment instruction)
Within banks, this kind of complex decision requires a mature risk management framework and experienced people
Often, the signs of a scam are very clear and it simply takes someone senior within the bank to confidently say “no”, no matter what the customer is prepared to sign.
I first saw this kind of risk management call being made to good effect in a UK bank in 2013, after a vulnerable customer insisted on continuing to send his life savings to a scammer against bank advice. Eventually (after £250,000 was sent, the bank called time on it). The bank developed its risk stance on scams from there.
Sadly, if a bank chooses not to intervene in a highly suspicious transaction made by a vulnerable customer, there’s a real danger that the very payment systems that are meant to enhance and enable our modern lives are actually facilitating a customers financial demise. It’s a tough one.
But sometimes you just need to do the right thing
