U.S. Banks Profit from Facilitating Fraud against Their Customers

Wednesday, June 12, 2013

The U.S. Department of Justice is beginning to crack down on banks that help scammers defraud customers.


Banks under scrutiny have not partnered with fraudulent schemes, but rather have facilitated and enabled efforts to cheat Americans out of their money.


Two banks—Zions Bank of Salt Lake City and First Bank of Delaware—have been singled out in lawsuits by federal authorities and a consumer law firm. In both cases, bank officials were accused of allowing shady merchants to illegally withdraw funds from accounts belonging to victims.


Justice Department attorneys are considering civil and criminal actions against numerous banks for allowing tainted money to flow through branches, for failing to safeguard against suspicious merchants, and for originating transactions on behalf of businesses that they know make unauthorized withdrawals from customer accounts, according to The New York Times (NYT).


“You can’t close your eyes anymore to the fraud that you are allowing to happen,” Michael Blume, director of the Consumer Protection Branch at the Justice Department, told the NYT. “Banks are in business to make a profit. Unfortunately, this is a moneymaking operation at consumers’ expense.”


First Delaware reached a $15 million settlement last November with the Justice Department after it was accused of allowing merchants to illegally debit accounts more than two million times and withdraw more than $100 million. Its assets were liquidated and it has ceased operations.


Zions has been criticized for helping National Health Net Online, which has defrauded numerous individuals, by establishing a banking relationship with an intermediary, Modern Payments, that handled payments for National Health.


In doing so, Zions received a cut of the fee received by Modern Payments for each person whose account was accessed. Between 2007 and 2009, Zions allowed about $39 million to be withdrawn from hundreds of thousands of its accounts, much of which was transferred to other bank accounts in India, Canada and the Caribbean. This enabled Zions to charge $20 million worth of insufficient funds fees to its customers who had been scammed.

-Noel Brinkerhoff


To Learn More:

Banks Seen as Aid in Fraud Against Older Consumers (by Jessica Silver-Greenberg, New York Times)

First Bank of Delaware Ignored Federal Warnings (by Julia Filip, Courthouse News Service)

Citibank Accused of Tricking New Customers about “Free” Frequent Flyer Miles (by Noel Brinkerhoff, AllGov)              

Bank of America Sued over Unsolicited “Privacy Assist” Monthly Charges (by Noel Brinkerhoff, AllGov)

First Premier Bank Charges 80% Credit Card Interest (by Noel Brinkerhoff, AllGov)


Randy Long 8 years ago
Regions Bank, the nation's 12th largest bank, is under suspicion and investigation by its bank regulators for Major Fraud and Discrimination against its bank loan applicants and customers concerning its Home Equity Loan.

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