Wednesday, March 3, 2010

Customer Vs. Bank: Who is Liable for Fraud Losses?

Customer raises Key Questions About Responsibility and Security

The lawsuit, filed by EMI in a Michigan circuit court, alleges that Dallas-based Comerica opened its customers to phishing attacks by sending emails asking customers to click on a link to update the bank's security software. In January 2009, an EMI employee opened and clicked on links within a phishing email that purported to be from Comerica. The email duped the employee into believing the bank needed to update its banking software. Subsequently, more than $550,000 was stolen from the company's bank accounts and sent overseas.

EMI says even though the bank had two-factor authentication using digital certificates for its online banking portal, the phishing scam was able to circumvent these measures. The bank says its online security methods were reasonable "because they were in general used by other similarly situated customers of other banks."

Anytime a company incurs a data breach that compromises personal information, the organization risks having its customers walk away for good. That's why it's so important that, before an incident occurs, a company take proactive steps to implement a reasonable security program.

Is a Bank Liable For Phishing?

Should a bank be held liable for a customer's employee falling for a phishing email that supposedly represents the bank?

Most employees have been warned about phishing attempts, but even the most robust training does not protect against occasional human error. Does this training need to occur more frequently, or is it a matter of customizing the training to the evolving and specific types of phishing attempts? If a company is going to be responsible under the law for employees' vulnerability to phishing attempts, that's a pretty good incentive to increase training.

Can a bank be held liable? Some security experts say emphatically 'No.' "The bank clearly could have made better decisions on how to update security information.

What is 'Reasonable Security'?

In this case, was the bank's two-factor security token technology an unreasonable safeguard based on the information available at the time it was implemented by the company?

The key issue here is that What measures were in place to detect unauthorized, unusual activity involving this customer account, and did the bank act quickly enough in response to such detection? "All companies could benefit from evaluating and assessing how they compare the issues raised in this case against their own information security programs.

Banks should view it as a wake-up call and work on mitigating phishing attacks.

Refer here to read more details.

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