Consumer NZ CEO Jon Duffy wants banks forced to refund customers who are tricked into sending their money to scammers. Photo / Supplied
The consumer watchdog is calling for banks to step up their fight against financial crime, and wants new measures forcing banks to refund customers who are tricked into sending money to overseas scammers.
The banking sector is under growing pressure to take action to protect Kiwis, as the number of scam victims spirals on the back of even more devious tactics to steal people’s money.
It’s estimated scammers are sucking around $200 million a year from New Zealand victims, though that figure is likely to be conservative due to many people not reporting the crimes out of shame.
Consumer NZ boss Jon Duffy says our consumer protection frameworks are weak compared to comparable countries.
He says tougher measures are needed to target scammers and force banks - which are ultimately responsible for transferring victims’ money to criminals - to take action to address what is becoming a financial crime epidemic.
“It’s a big thorny issue and it’s getting worse. The figures are mind-boggling.”
The banking sector is defending its efforts to fight scammers, saying it’s investing in high-tech security systems that detect unusual transactions in a bid to keep customers’ banking safe, and campaigns to raise public awareness.
However, Banking Association chief executive Roger Beaumont said forcing banks to refund scam losses could perversely shift the balance and create more victims.
“That could mean customers have little incentive or responsibility to protect their money and could lead to much greater fraud losses.”
Banking Ombudsman Nicola Sladden told the Herald she wants banks to improve scam prevention and detection, and that she would back a review into how we determine liability and reimburse victims’ losses.
Currently, banks are obliged to refund customers who lose money in unauthorised, fraudulent transactions - provided they haven’t been wilfully negligent - but not those who are sucked into deliberately sending money to scammers in authorised payments.
Sladden agrees our consumer protections need strengthening given the scale of the problem.
She and Duffy are calling for banks to begin checking that recipient account numbers and names match with those that customers believe they are sending money to.
This would make life harder for scammers and bring New Zealand into line with countries such as the United Kingdom and Australia.
“There is no doubt there is more that can and should be done to detect and prevent scams,” Sladden said.
“We see the devastating impact scams have on people, and welcome any further steps to protect consumers.”
The comments come amid an exponential rise in scams and online fraud, with each new sting growing in sophistication and complexity.
A NZ Crime and Victims Survey released last week by the Ministry of Justice found victims were experiencing more incidents of crime, driven by increasing fraud and deception cases, which jumped from 288,000 to 510,000 in the year to November.
The ministry noted that fraud and cybercrime had the lowest reporting rates.
A Herald investigation has uncovered a slew of high-profile scam cases where victims have lost millions of dollars.
Some had their online accounts hacked and money drained without their knowledge.
Others were duped by elaborate investment scams, believing the money they sent was safe in bank term deposits or tied up in tech companies on the international stock markets.
One victim sank $400,000 into a bogus HSBS scam, and another lost $1.4m in a share trading ruse spanning a staggering 43 months.
On the back of repeated negative headlines, banks have jointly funded a TVNZ series in collaboration with the Banking Ombudsman’s office which is being fronted by celebrity psychologist Nigel Latta.
The four-part series, You’ve Been Scammed, debuts tonight.
It features several victims whose stories were covered by the Herald, including North Shore real estate agent Carla O’Neil who lost $100,000 on a Citibank-branded investment scam earlier this year.
Duffy told the Herald banks were the last line of defence between scammers and victims.
He said banks “had deep pockets” and were generating record profit - with the Commerce Commission launching a market study into the sector. They had a duty to do more to protect customers.
Forcing banks to refund authorised customer payments in scam situations - a requirement in the UK - would hit banks’ bottom lines and provide necessary impetus for them to invest in better systems and intelligence to detect and prevent fraud, Duffy said.
“Banks are the choke point. The money has to go through a bank to the scammer so the banks have the best opportunity to intervene.
“If banks are forced to refund losses they’re going to put more friction into the system to ensure there are low levels of fraud.”
But any such change would require an overhaul of the “scam ecosystem”, as had occurred in Singapore. This would mean bringing together relevant agencies to coordinate and improve intelligence, giving banks “real-time” information on the latest scams to help detect suspicious transactions.
Duffy said this would invariably create friction between banks conducting extra due diligence to ensure they weren’t liable for fraudulent money transfers, and customers wanting swift processing of legitimate payments.
A balance would need to be struck.
“We can’t just dump the financial responsibility on banks without putting broader support in place to help fight this scourge.”
Duffy said Consumer NZ surveys showed trust in banks had plummeted. Requiring banks to reimburse payments when customers had been duped by fraudsters could help banks rebuild that trust and their social licence.
If they refused to do so voluntarily, regulation remained an option.
The Banking Association said scams were increasingly sophisticated with devasting consequences, which was why the sector was investing significantly in measures to fight financial crime.
“That includes systems to pick up unusual transactional behaviour and provide warnings for customers making payments to people who may be criminals tricking them into making the payment,” Beaumont said.
But public education was also critical as scams were constantly changing and adapting.
Banks had industry initiatives to promote awareness, including radio and social media campaigns, and had collectively funded the Latta series, which focused on the psychology of scams and how criminals take advantage of people’s trust.
Beaumont said banks were often at the end of the chain of events that made up a scam.
“To address this properly we need all parties involved including, for example, global tech companies, telcos, internet service providers, government agencies, dispute resolution services, and consumer representatives and advocates.”
Matching accounts and names with the customer’s intended recipient had privacy implications that would need to be overcome, Beaumont said.
Consumer Affairs Minister Duncan Webb said staying safe from scams was a partnership between banks and customers.
“It is critical for banks to take all necessary steps to protect customers, but it also remains important for individuals to be vigilant and to mitigate any risks they identify.”
Payment NZ was working to modernise the country’s payments systems, including work to introduce a confirmation payee system, Webb said.
Asked whether he would support forcing banks to refund scam victims, he said this was “complex” and needed careful consideration.
“We always want to have rules that strike a balance to ensure that those who can take protective steps are incentivised to do so, and that if there is loss it is borne equitably.
“That is why it’s so important to work together with government, banks and consumers to strike the right balance.”
Lane Nichols is a senior Herald journalist and deputy head of news based in Auckland covering fraud and financial crime. Before joining the Herald 11 years ago, he spent a decade at Wellington’s Dominion Post and the Nelson Mail.
Much of the South Island is set to plunge below 0C tonight and tomorrow.