Citibank failed to prevent fraud, New York AG says in new lawsuit

NEW YORK — New York Attorney General Letitia James filed a suit against Citibank Tuesday, claiming that the bank has systematically failed to protect its customers from fraud and to reimburse victims of scammers and hackers. 

James’ office filed its complaint Tuesday in federal court in Manhattan. In it, the attorney general says that the country's third-largest bank has not met the Electronic Fund Transfer Act’s requirements that banks take efforts to limit theft and reimburse customers for stolen funds.

“As a result of Citi's lax security, New York customers have lost millions of dollars, and in some instances, their entire life savings, to scammers and hackers,” a press release from James’ office states. 

She specifically detailed the stories of two New York Citi customers whose life savings — $35,000 and $40,000, respectively —were stolen by scammers with no reimbursement from Citi.

“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 the press release.

“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," she added.

The complaint focuses on Citi’s alleged failures to defend customers from wire-transfer scams. The bank, James says, specifically instructs consumers to waive Electronic Fund Transfer Act protections before it investigates fraud claims.

“In fact, under cover of these coerced affidavits, Citi treats consumers’ claims as subject to narrow commercial laws governing wire transfers rather than the EFTA’s robust protections for unauthorized electronic payments. Citi then summarily rejects claims for reimbursement and instead blames consumers," James says in the complaint.

Rather than reimbursing its defrauded customers, the complaint continues, Citi’s representatives ask them about avenues through which scammers may have accessed their online accounts, then send them form letters regurgitating that information and denying their claim for reimbursement. “Other than blaming consumers, Citi’s form letters provide no details on the bases for its denials,” James says in the complaint.

The attorney general is seeking relief in the form of disgorged profits, a $5,000 fine for each instance of lawbreaking and the appointment of a third-party monitor to identify affected customers.

Citi denied James’ claims in a statement, saying that fraud of this kind was not the bank’s responsibility. “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.”

An “industry-wide surge in wire fraud,” the bank added, has led it to take “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.”

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