In brief

• How much responsibility should banks bear in protecting customers from fraud, balancing intervention with the customer’s right to make their own decision?

• Banks can prevent significant financial losses if they  detect and act on suspicious activities, particularly for vulnerable customers.

• Some believe overactive bank intervention infringes on personal autonomy and privacy, and there are legal and operational challenges involved.

• The Banking Ombudsman has been criticised for “victim-blaming” in fraud cases, but how much of this is the robin hood instinct of take from the rich?

How much responsibility should banks bear in protecting customers from fraud? 

Given the high stakes and the potential for life-changing financial losses, what are the arguments for and against banks maintaining tighter controls over customers’ money?

The case of an 89-year-old widow with dementia who withdrew over $300,000 in cash with the assistance of Westpac bank tellers highlights the challenge of balancing intervention and customer autonomy. Similarly, NZ First candidate David Wilson and a retired policeman lost a combined $500,000 in an investment scam after Kiwibank confirmed a mule account as ‘legitimate.’

The case for increased bank intervention: Protecting vulnerable customers

Banks are often the first line of defence against fraud and financial exploitation. They can detect and act on suspicious activities quickly, potentially saving customers significant sums of money. 

Furthermore, ensuring compliance with anti-money laundering (AML) regulations can prevent the misuse of accounts for fraudulent activities. 

For example, Wilson alleges that Kiwibank failed to adhere to AML regulations, resulting in significant losses. He says that losses may have been prevented if Kiwibank had investigated his concerns more thoroughly. 

Also, financial elder abuse is a significant concern. Some argue that Westpac failed in its duty of care by unquestioningly allowing the elderly widow to withdraw large sums of money. This is especially true after a note was added to her file stating she was a vulnerable customer.  

The case against bank intervention: Respecting customer autonomy

However, many believe that banks should not interfere in their customers’ financial decisions. 

In many places, including New Zealand, a lot of people do not like it when banks ask too many questions around what customers may or may not be doing with their money. There is a strong belief in respecting individual autonomy and privacy. 

They may view bank interventions as intrusive and paternalistic, infringing on their right to manage their own finances as they see fit. 

There is also the risk of legal repercussions if a bank wrongfully intervenes or fails to act appropriately. Also, banks face significant operational challenges and legal risks when intervening in their customers’ affairs. Not to mention that determining when to intervene can be difficult. 

In the widow’s case, Westpac maintained that the customer was “confident and savvy with money” and that staff ultimately acted on her instructions. 

Blame all around

When the widow’s daughters filed a complaint with the Banking Ombudsman. Nicola Sladden. The reply, in part, was: 

“You have previously indicated your mother was not someone you would question regarding her funds and as such the branch staff were of the same opinion.”

In an article for the Otago Daily Times, Victim Support’s strategy and advocacy general manager, Dr Petrina Hargrave, criticised the Banking Ombudsman’s office for “victim-blaming.” 

In this case BNZ customers were fleeced of hundreds of thousands of dollars. The Ombudsman said BNZ should have been more aware of the scam unfolding, but also determined that the victims were partly to blame for failing to do their due diligence. 

However, Hargrave noted:

“If a bank fails to detect a scam, we cannot assume victims will, and then blame them if they don’t.”

Similarly, Sladden also effectively placed the responsibility for verifying the bogus Kiwibank account on Wilson.

In civil law, courts usually work through these kinds of disputes by apportioning blame based on the doctrine of “contributory negligence”, which recognises that fault may lie with both the bank and the customer.

The situation also highlights the unintended consequences of “nanny statism”, where as consumers have surrendered their privacy and freedom to banking AML regulations, their expectations of a safe transaction have grown whilst their instincts around sending large amounts of money have dulled.