The Justice Department is targeting banks across the country that give suspicious merchants access to the financial system, according to a report by Jessica Silver-Greenberg in the New York Times.
Although banks are good about dismissing reported fraudulent charges, many do too little to stop these charges from occurring in the first place. After all, banks can make money on the fraudulent transactions too.
An ongoing lawsuit, reported by the Times, allegedly reveals what this shady arrangement looks like.
Zions Bank of Salt Lake City, is being sued by tens of thousands of seniors who say the bank knowingly allowed fraudulent merchants to take their money.
The customers claim they were contacted by a health company asking to update their Medicare cards. They say they volunteered their bank information in the process and later found their accounts had been charged a few hundred bucks by the health company's payment center. Although customers complained to Zions in droves, the bank allegedly did nothing to stop payments to the health company — to the tune of $39 million between 2007 and 2009.
Meanwhile, Zions made money off the whole thing. According to the Times, Zions made money when it charged a third party for processing the transaction; when it charged a third party for processing the returns; and when it collected a $20 million in insufficient fund feeds that were triggered after the initial charges.
Zions released this statement on the allegations:
“Zions takes seriously the need to prevent the banking system being used for fraudulent purposes; however, it is our general policy not to comment on pending legal matters. There is another side to this story, other than that told by the plaintiff. Our side of the story will be told at the appropriate time through the legal system.”
How do you protect yourself?
With inadequate regulation from the government, consumers need to protect themselves.
First of all this means taking precautions to avoid getting scammed in the first place. Giving bank information over the phone, for instance, is never a good idea.
Second, consumers should check their accounts closely for fraud and alert their bank after anything suspicious.
Most credit cards come with zero fraud liability, which means you'll be off the hook for charges. If they don't, then you're only liable for up to $50 worth of fraudulent charges by law. Consumers must report illegal debit card activity within two days to enjoy the same benefit.
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