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Internet Banking Fraud Protection

Code of Banking Practice

If you do your banking on the Internet, then you should be aware that the risk associated with Internet banking increased from July 2007.  The New Zealand Bankers Association (of which all the main trading banks are members) has introduced a new Code of Banking Practice, which includes a section on Internet banking.

If an Internet banking user becomes the victim of fraud and has contributed to the Internet fraud by either:

a) having a computer or device that does not have appropriate protective software and operating systems installed and up to date; or
b) failing to take reasonable steps to ensure that the protective systems such as virus scan, firewall, anti-spyware, operating system and anti-spam software on the computer are up to date; or
c) failing to follow reasonable security warnings about the appropriate processes and safeguards to follow when using Internet banking;

then the bank is not liable for any loss.

The code provides for the bank to have the right to request access to the user’s computer in order to verify all reasonable steps to protect the computer had been taken.  If access is denied then the user may be held liable.

The effect of the new code is that the onus to safeguard a computer has been shifted to the user, although the banks retain the responsibility to inform the user of the best way to do so.  The Code has been criticised for not being specific enough as to what constitutes adequate protection.  However, as matters now stand, users are obliged to update their computer security systems in accordance with their bank’s recommendations.  Failure to do so means that the Internet user will be liable for losses up to their overdraft limit.

The Bank is responsible for fraudulent transactions that are not caused by the user if they are promptly advised of the fraud or advised that the customer ID, password or other security information is, or may be, known to another person or that there has been unauthorised access to the bank’s site for Internet banking information or accounts.

Remedies

If you become involved in a dispute with your bank over liability for Internet fraud, then you should initially attempt to resolve the matter through the bank’s internal complaints procedure.

If this is unsuccessful, a complaint may be made to the Banking Ombudsman, provided the amount at issue is less than $200,000.  The Banking Ombudsman in turn can refer complaints to another party such as the Insurance and Savings Ombudsman, the Privacy Commissioner or the Human Rights Commissioner.  Banks are bound by recommendations made by the Banking Ombudsman.

If a claim is unsuccessful with the Banking Ombudsman, or it is for an amount exceeding $200,000, then an application will have to be made to the Court.  Either way, it would be advisable to consult us at the outset.

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