Citi Pushes Back on NY’s Online Fraud Suit: We’re Not ‘Bad Guys’

Citigroup Inc. said US banks will be forced into a “dramatic shift” in how electronic payments are processed if New York state wins a lawsuit claiming the company doesn’t do enough to prevent online fraud.

Lawyers for the company’s Citibank unit urged U.S. District Judge Paul Oetken on Tuesday to throw out a suit filed in January by Attorney General Letitia James, saying the bank has robust and extensive procedures to protect consumers from being scammed into making fraudulent transfers. James claims the bank isn’t doing enough to protect customers and refuses to reimburse victims.

“Citi and the banking industry are not in any way the bad guys here,” Julia Strickland, a Citibank attorney, told the judge. She said the state is trying to improperly rewrite the Electronic Fund Transfer Act through “litigation rather than legislation,” which Citi has argued in a filing would “dramatically upset how banks have organized their policies and practices for decades.”

New York’s lawsuit comes as consumers are losing billions to financial fraud to scammers using more advanced tools, including artificial intelligence, to dupe victims. The Federal Bureau of Investigation found that Americans lost $12.5 billion to online fraud in 2023.

James claims the bank is blaming customers who are the victims of online scams instead of securing their accounts and failing to reimburse losses when required by law. Her complaint cites claims from customers in New York, including one who had $40,000 stolen from a retirement account after she clicked a link in a text message that looked like it came from Citi.

No Authorization

Christopher Filburn, a lawyer for the state, told Oetken the case is about what happens when money disappears from a consumer’s bank account with no instructions or authorization from them — and sometimes without their knowledge. The state wants the bank to disclose all customer claims it denied over the past six years for lost money tied to payment orders and debit authorizations.

“We have heard from consumer after consumer” since the lawsuit was filed, Filburn said.

But Strickland said the state’s demands would result in a “dramatic shift” in how payments are processed. She argued that major banks use multi-factor authentication and multiple layers of fraud detection to stop scams, and that James’ office is “well aware that Citi is on top of this issue.”

The bank contends that the EFTA governs electronically-initiated fund transfers by consumers, including ATM transactions, but not wire transfers. Citibank says it isn’t responsible for losses as long as it follows reasonable security procedures to verify customer identities.

“Banks are highly incentivized to stay on top of scams,” Strickland said, noting that the number of fraudulent payments that go through are “minuscule” compared to the volume of legitimate transfers that are processed annually. “The idea that some scams get through is unfortunate, it happens.”

While criminals are becoming “increasingly sophisticated” and bank processes are evolving to catch them, Strickland said many fraudulent transfers happen because consumers share personal information with scammers.

“That’s not a Citi issue,” she said. “It’s a consumer issue. It’s very unfortunate.”

The case is New York v. Citibank N.A., 24-cv-00659, US District Court, Southern District of New York (Manhattan).

Top photo: A Citibank branch in New York, US, on Saturday, June 29, 2024. Citigroup Inc. is scheduled to release earnings figures on July 12. Photographer: Michael Nagle/Bloomberg.