Bank lawsuits expose legal confusion over cybercrime

Last updated: 19 March 2014

In two consecutive weeks we saw headlines made by customer versus bank lawsuits relating to cybercrime.

In early June, a court in Maine ruled in favor of Ocean Bank in an ACH fraud lawsuit, saying that, “having verified IDs, passwords and requested challenge response questions, it acted in good faith by processing the ACH payments and Patco (the customer) was to blame for letting its details become compromised.”  This week, however, we see a different (near opposite) ruling from a Texan judge which favored the business which had been the victim of fraud.

What happens after they’ve struck?

In the most recent case, the customer (Experi-Metal) was a victim of an apparent real-time phishing scam that resulted in almost 100 wire transfers (worth $560k) being processed after both their Comerica user credentials AND security token password were compromised.  The judge stated: “A bank dealing fairly with its customer, under these circumstances, would have detected and/or stopped the fraudulent wire activity earlier.”

There are a few things worth noting in these scenarios, firstly the fact that neither of these banks are major financial institutions – meaning attackers are looking further afield for potential victims.  By targeting smaller organizations, they obviously believe that they will be more likely to find the weak link in the security chain, wherever it is. This means that every institution, large or small, should have someone (or some group) that owns security for them and takes it seriously – before they end up in the news.

Secondly, no one wins from a lawsuit like this – there is no scenario where a bank should say “we won that one!”  Whether a judge decrees it or not, it is the responsibility of the institution to provide a safe banking environment for customers, period.

Thirdly, the ruling shows that our current laws do not understand, or even agree on, what should be done.  One judge ruled that questions and answers were good enough to protect the customer. Then, a separate judge rules that the bank should have detected a mere 100 wire transfers from an account after IDs, passwords, and its OTP token password were compromised.

I am no legal expert, but I feel the judge in Texas got it right, whilst his counterpart in Maine was probably basing his ruling on the fact that he has never had his credentials compromised.

Finally, it is important to note that protections that can thwart these attacks are both available and affordable.  Online banking is now a critical piece of the delivery chain for banks of every size and, when a lawsuit like this happens, it calls attention to a growing problem.  Coupled with recent attacks aimed at huge companies like Lockheed and Citibank, there is a real danger that customers may start to EXPECT to be compromised, and just avoid the channel entirely as a result.  And that is the last thing that banks would want to happen.