Citi Rejects New York Online Fraud Lawsuit: We’re Not ‘Bad Guys’

Citigroup Inc. said US banks will be forced to make a “dramatic change” in how they process electronic payments if New York state wins a lawsuit alleging the company is not doing enough to prevent online fraud.

Lawyers for the company’s Citibank unit urged U.S. District Judge Paul Oetken on Tuesday to throw out a lawsuit filed in January by Attorney General Letitia James, saying the bank has robust and extensive procedures to protect consumers from being tricked into making fraudulent transfers. James claims the bank is not doing enough to protect customers and is refusing to reimburse victims.

“Citi and the banking industry are in no way the bad guys here,” Julia Strickland, a Citibank attorney, told the judge. She said the state is improperly trying to rewrite the Electronic Funds Transfer Act through “litigation rather than legislation,” which Citi argued in a filing would “dramatically disrupt the way banks do their have organized policies and practices for decades’.

The New York lawsuit comes as consumers lose billions in financial fraud to scammers who use more advanced tools, including artificial intelligence, to trick victims. The Federal Bureau of Investigation found that Americans lost $12.5 billion to online fraud in 2023.

James claims the bank is blaming customers who are victims of online scams instead of securing their accounts and not refunding losses when required by law. Her complaint cites claims from clients in New York, including one who had $40,000 stolen from a retirement account after he clicked on a link in a text message that appeared to be from Citi.

Without Authorization

Christopher Filburn, an attorney for the state, told Oetken that the case is about what happens when money disappears from a consumer’s bank account without their instructions or authorization — and sometimes without their knowledge. The state wants the bank to disclose all customer claims it has rejected over the past six years for money lost related to money orders and debit authorizations.

“We’ve heard from consumer after consumer” since the lawsuit was filed, Filburn said.

But Strickland said the state’s demands will result in a “dramatic change” in how payments are processed. She argued that major banks use multi-factor authentication and multiple layers of fraud detection to stop scams, and that James’ office “is well aware that Citi is at the forefront of this issue.”

The bank argues that the EFTA regulates funds transfers initiated electronically by consumers, including ATM transactions, but not wire transfers. Citibank says it is not responsible for losses as long as it follows reasonable security procedures to verify customers’ identities.

“Banks are highly motivated to stay on top of scams,” Strickland said, noting that the number of fraudulent payments that go through is “miniscule” compared to the volume of legitimate transfers that are processed annually. “The idea that some scams go through is unfortunate, it happens.”

As criminals become “more and more sophisticated” and banking processes evolve to catch them, Strickland said many fraudulent transfers occur because consumers share personal information with scammers.

“It’s not a Citi problem,” she said. “It’s a consumer problem. It’s very unfortunate.”

The case is New York v. Citibank NA, 24-cv-00659, U.S. District Court, Southern District of New York (Manhattan).

Top photo: A Citibank branch in New York, US, Saturday, June 29, 2024. Citigroup Inc. is scheduled to release earnings figures on July 12. Photographer: Michael Nagle/Bloomberg.

Copyright 2024 Bloomberg.