mobanmarketNEW YORK — New York Attorney General Letitia James is taking on banking giant Citibank over allegations that it failed to properly protect customers from fraud and then refused to reimburse them when they fell victim.
James announced on Tuesday that she is suing New York-based Citibank, N.A. over those allegations. The lawsuit alleges that Citi does not implement strong online protections to stop unauthorized account takeovers, misleads account holders about their rights after their accounts are hacked and funds are stolen, and illegally denies reimbursement to victims of fraud.
“Banks are supposed to be the safest place to keep money, yet Citi’s negligence has allowed scammers to steal millions of dollars from hardworking people,” James said in a statement released on Tuesday. “Many New Yorkers rely on online banking to pay bills or save for big milestones, and if a bank cannot secure its customers’ accounts, they are failing in their most basic duty. There is no excuse for Citi’s failure to protect and prevent millions of dollars from being stolen from customers’ accounts and my office will not write off illegal behavior from big banks.”
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For its part, Citibank said that it goes beyond what is required by law to protect its customers. Officials said while the bank does its best to educate its customers, it can’t be held responsible in all cases in which customers fall victim to scammers.
“Citi closely follows all laws and regulations related to wire transfers and works extremely hard to prevent threats from affecting our clients and to assist them in recovering losses when possible,” the bank said in a statement. “Banks are not required to make customers whole when those customers follow criminals’ instructions and banks can see no indication the customers are being deceived. However, given the industry-wide surge in wire fraud during the last several years, we’ve taken proactive steps to safeguard our clients’ accounts with leading security protocols, intuitive fraud prevention tools, clear insights about the latest scams, and driving client awareness and education. Our actions have reduced client wire fraud losses significantly, and we remain committed to investing in fraud prevention measures to help our clients secure their accounts against emerging threats.”
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The Office of the Attorney General (OAG), however, said it has found that the bank fails to respond to fraudulent activity appropriately and quickly. As a result of Citi’s lax security, the AG alleges, New York customers have lost millions of dollars, and in some instances, their entire lifesavings, to scammers and hackers.
James said her office is seeking to hold Citi accountable for failing to protect its customers and to require the company to pay back defrauded New Yorkers with interest, pay penalties, and adopt enhanced anti-fraud defenses to prevent scammers from stealing consumers’ funds.
The lawsuit alleges that scammers are able to steal tens of thousands of dollars from Citi customers because the bank does not implement strong data security and anti-breach practices, despite being among the largest banks in the U.S. As a result of Citi’s lax security protocols and procedures, ineffective monitoring systems, and failure to respond in real-time and properly investigate fraud claims, New Yorkers have lost millions to scammers, the AG contends.
James cited specific cases of New Yorkers falling victim, in part, she says, due to the bank’s negligence.
One New Yorker had $40,000 stolen from her retirement savings account. In October 2021, the customer received a text message that appeared to be from Citi, instructing her to log onto a website or call her local branch. The customer clicked the link in the message but did not provide additional information as requested in the text message.
Afterwards, the customer called her local branch to report the suspicious activity but was told not to worry about it, according to AG investigators. Three days later, the customer discovered that a scammer changed her banking password, enrolled in online wire transfers, transferred $70,000 from her savings to her checking account, and then electronically executed a $40,000 wire transfer, none of which was consistent with her past account activity.
For weeks, the customer continued to contact the bank and submit affidavits, but in the end, she was told that her claim for fraud was denied.
Another New Yorker had $35,000 stolen from her account.
She was reviewing her online account and found a message that her account had been suspended and was instructed to call a phone number. She called the number provided and a scammer told her that he would send her Citi codes to verify recent suspicious activity. The scammer then transferred all of the money in the customer’s three savings accounts into her checking account, changed her online passwords, and attempted a $35,000 wire transfer.
Citi attempted to verify the wire transfer by calling the customer, but she was working and did not see the call at the time. Less than an hour later, the scammer attempted another $35,000 wire transfer, which Citi approved without ever having made direct contact with the customer, the AG’s office said. She lost nearly everything she had saved, and Citi refused to reimburse her, according to the investigators.
The AG investigators said they found that Citi’s systems do not respond effectively to red flags, such as scammers who are using unrecognized devices, are accessing accounts from new locations, or are changing banking passwords or usernames.
Additionally, the AG’s office contends that Citi systems do not flag and stop efforts to transfer funds from multiple accounts into a single account and then send tens of thousands of dollars out the door in minutes. Citi also does not automatically initiate investigations or report fraudulent activity to police or law enforcement authorities when consumers first report it to Citi, according to James.
Perhaps the most concerning allegations, the AG said, was a finding that Citi fails to appropriately respond to notifications of fraud by its customers.
When victims contact the bank to report fraud, Citi leaves them on lengthy telephone holds, allowing scammers to continue their fraud, according to the lawsuit. James said Citi does not implement sufficient measures to protect consumers from future unauthorized transactions until they visit a local branch.
In some cases, Citi representatives falsely told consumers that their accounts were secure and often promised that their money would be returned, according to the lawsuit, even though the bank did not take immediate steps to recover stolen funds. Citi also falsely tells consumers that they need to visit local branches and execute special affidavits detailing the scams that led to their losses, information, James said, Citi then used to blame consumers and deny their claims.
James contends that because Citi makes wire transfers available to consumers online and through mobile banking apps, Citi must reimburse victims of fraud under the Electronic Fund Transfer Act (EFTA), similar to when banks reimburse victims of electronic credit or debit card fraud. Under EFTA, banks such as Citi are required to reimburse their customers for money in their accounts that is lost or stolen through unauthorized electronic payments, according to the AG. However, Citi illegally exploited a narrow exception in these laws to deny consumer claims for reimbursement, James said, resulting in millions of dollars in losses for New York consumers.
Through the lawsuit, James said she hopes to stop Citi’s “deceptive practices” and to collect restitution for victims who were denied reimbursement in the last six years, penalties, and disgorgement.
The Attorney General’s Office is encouraging all consumers who have lost money to scammers who hacked into their online or mobile banking, whether the bank accounts were with Citi or any other bank, to report their experiences to the office’s Consumer Frauds Bureau.
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