Bank Lawyer's Blog

Online Banking: The Good News and the Bad

The Pew Internet and American Life Project conducted a survey last November, the results of which show that forty-four percent of U.S. Internet users bank online, up from 30 percent two years ago. People with high-speed connections at home, those between the ages of 28 and 39, and more affluent households were most likely to bank online. That's all good news for banks that are targeting online banking as a growth channel.

Of course, for every silver lining, there's a dark cloud. About the same time that the Pew Internet survey results were released, a businessman in Florida sued Bank of America for $90,000 looted from his online account through hacking of his, not the bank's, computers. The basis of the suit, at least as reported in the press, is that Bank of America was negligent in not advising the customer of the risks of online banking, particularly the risk of a particularly vicious virus used by cybercriminals to gain access to customer's computers and use that access to gain access to their online bank accounts. The complaint also alleges breach of contract, breach of fiduciary duty, fraud and deceit, and intentional misrepresentation.

"The complaint is believed to be the first legal action by a customer against a U.S. bank to recover money apparently stolen by cybercriminals." Not likely the last complaint, however. While it's likely to be difficult to win such a case, it's not impossible. Remember, there's no telling what a "jury of your peers" might decide.

As you can never be too rich or too thin, you can never have too much Internet security.

---Kevin Funnell

Credit Report Information Disputes: Will Lenders Be Losers?

As the Big 3 credit reporting agencies begin the nationwide roll out (from West Coast to East Coast) over the course of this year, of the FACT Act's mandate that they each provide consumers (upon request) with an annual free credit report, there is concern among lenders (and other "furnishers of information" to credit bureaus) that they will be burdened with extra involvement in disputes over inaccurate information in those credit reports. This fear is generated as a result of a change to Section 623 of the Fair Credit Reporting Act (the FCRA) that was enacted by the FACT Act and that became effective December 1, 2004. Prior to the FACT Act changes, the FCRA permitted consumers to dispute the accuracy of information contained in a credit report with the consumer reporting agency that furnished the report. The agency notified the furnisher of the information that was disputed, and at that point, the furnishers of information were required to investigate the accuracy or inaccuracy of such information and report back to the agency, which in turn, contacted the consumer. Now, a lender may be contacted directly by the consumer and the lender must reinvestigate and deal directly with the consumer on the results of that reinvestigation. This obligation to reinvestigate upon a consumer's request that is made directly to the lender is in addition to the reinvestigation that must be conducted when the consumer disputes the accuracy of the information with the consumer reporting agency.

Although this provision of the FACT Act was effective December 1, 2004, the specific provision of the FACT Act requires the federal banking agencies, the NCUA and the FTC to jointly adopt regulations prescribing how the process is going to work. They have not yet done so. In November 2004, the chief and general counsels of the various agencies released a letter (subject of a previous blog posting) stating that the final regulations were necessary before furnishers of information would know their obligations. To date, those regulations have not been adopted, but will not be delayed indefinitely.

Some lenders have been wondering whether to add staff in anticipation of increased contact from consumers. Some believe that consumers will be more willing to contact their local bank than a giant credit reporting agency. Other lenders have considered the implementation of more advanced automated dispute processing systems. Contrarians believe that the availability of this right is not likely to result in a substantial increase in contacts with lenders, on the basis that the FACT Act did not suddenly create a class of financially sophisticated consumers that is more numerous than existed prior to December 1, 2004 (or September 1, 2005, the date when the free credit rule is scheduled to be applicable nationwide).

I tend to agree with the naysayers. If contacts with banks increase, it will be due to a trend of financial literacy generally, not due to the existence of this new right. I've seen no evidence that financial literacy of the average consumer is increasing. While there may be some increased contacts from the financially literate consumer, the numbers of those are in a distinct minority in this country.

Only time will tell; however, I think that there is no need to lose any sleep over this particular aspect of the FACT Act. Banks have enough real concerns to keep them restless. This is not one of them.
---Kevin Funnell