Like most consumers, I had always assumed that banks and customers are united in wanting to curtail bank fraud. Unfortunately, I have learned that in fact bank fraud is a big and profitable business -- for the banks themselves; and that changes in electronic banking, combined with the power of lobbyists to sustain the status quo that is stacked against ordinary account holders, mean that if consumers' accounts are corrupted, they can face systemic stonewalling by the banks themselves -- and have little recourse.
In 2005 I started to notice irregularities in a checking account I held with WaMu; but the irregularities were ambiguous. I sought at various times over the course of the next two years to go over all my statements -- but had trouble getting all my records from both online banking and from my branch itself. A busy working parent, I was certainly not as proactive as I should have been -- and, like many consumers of bank services, since we had family accounts and two mortgages at WaMu for many years, and had good relationships with our local branch, I also made the mistake of trusting the bank.
I noticed eventually that checkbooks were missing from my home, and finally my accountant got enough of the records to see an unmistakable pattern of fraud, and called my attention to it. I filed a police report and alerted WaMu to the fraud. For months thereafter, as you can see in the lawsuit that attorney David Fish and I have filed against J P Morgan Chase, now owner of WaMu, that is up on TheSmokingGun.com, I complied with what the WaMu bank officials directed me to do -- which was to leave the accounts open so they could investigate, they said, the fraud. If the fraud is reported within six months of confirmation of fraud, it is liable for the loss.
Then the same officials who had directed me to keep the accounts open, disappeared -- systematically, for just over six months. When I sought to talk to the fraud department, I still could not get records -- including my own missing bank statements -- even to see the full extent of my losses. The bank officials who had directed me to keep my accounts open were unavailable at the branch -- over the course of many attempts to speak with them. The police at the Sixth Precinct needed to see the missing documents, but even they could not force WaMu to hand over their -- my -- records. (WaMu's own internal emails cite a $300,000 figure for my loss from fraud -- I still did not have enough of my records to identify the loss. It is illegal, by the way, to withhold from an account holder his or her own records).
At eight months after the fraud discovery was confirmed -- eight months of trying to communicate with officials and a fraud department who were oddly unavailable or unresponsive -- I received a form letter from the WaMu Fraud Department advising me that according to the regulations, I had had a six month window for taking action; and (since WaMu had played out the clock for eight months) the letter asserted that I had waited 'too long' and my case was closed.
Inadvertently, subsequent to that, a WaMu bank official handed me the wrong file -- wrong from his point of view; illuminating from mine, and from any consumer's. It contained emails, some of which you can see at TheSmokingGun.com, from WaMu bank officials to one another -- and including emails from and to their counsel, PR department and and the fraud department -- that take as given that stonewalling a client with a fraud claim on the bank is standard practice; and yet one freaked-out bank official in the emails warns his colleagues that if their mechanisms in this regard became known, their practices would be all over the newspapers.
I was stunned by what seemed from the emails to be a systemic practice. Why would a bank want to perpetuate bank fraud rather than fight it?
As I researched the issue and spoke to other consumer bank account holders whose accounts had been corrupted by fraud, and to consumer advocates, I learned how systemic experiences such as mine -- and worse experiences -- are becoming. I heard from consumers across the country from all walks of life who had also been misdirected by their banks, or told that for various technical reasons their corrupted accounts could not be closed, and then faced difficulty reaching fraud departments or officials once the fraud was confirmed.
As Geoff Kischuck, an actuary in California whose business account was corrupted by fraud, and who then had to go daily to Bank of America for four months before he could successfully close the account, explained, there is a great deal of profit being made by banks with this situation. 'The shift from paper checks clearing physically, to electronic bank transactions, benefits the banking industry immensely,' he notes. The reason? It generates interest on the 'float time' that is still reckoned by the time that paper takes physically to clear, even while the electronic transaction is instantaneous; so it is in the interest of the banking industry to have as much electronic banking as possible. But electronic banking is much easier to hack -- and identity theft and bank fraud have skyrocketed accordingly; but the bank benefits a second time with every case of bank fraud and identity theft -- because of the immense fees -- overdraft fees, bad check fees, that can amount to hundreds or even thousands of dollars with each corrupted account -- racked up by the corrupted accounts. The longer it takes to close the corrupted account, the more difficult it is for the customer to have accountability with the bank's fraud department -- the more revenue for the bank. The bank freezes your ability to address the roblem -- but continues to charge you fees for the corrupted account. `Because of the fees that get drained out of an account, banks actually profit from bank fraud,' explains Kischuk.' Multiply this by the number of times across the country a consumer account faces identity theft or bank fraud -- and you see a mini-industry.
Customers assume that banking regulation and Congressional oversight means that if they find fraud on their checking accounts, there is accountability -- which is not in fact the case; strong bank lobbyists translate into weak protections for consumers and, as you can see from the emails, the bank's reasonable assumption that most customers in this situation will not be able to hold them accountable. And indeed, since legal action is time-consuming and expensive, most defrauded bank customers do eventually give up and go away.
I am certainly shocked by my own experience -- but even more disturbed after learning that such things and even worse have happened and continue to happen to people from all walks of life -- immigrants, retirees, people on disability -- who have experienced loss of savings, retirement accounts, college fees, mortgage payments and so on through bank fraud -- and who do all the things their banks direct them to do, only to find they have no actual recourse. They do not understand -- as I did not -- that a bank's fraud investigation department is actually likely fraudulently representing itself as the customer's, rather than solely the bank's, advocate. Banks such as WaMu -- and now Chase, which bought WaMu -- expect such people to simply go away. They -- and we -- should, rather, reach out to our elected representatives for wholesale reform -- and put each and every such case online, so consumers can see the worst offenders for themselves, and, with the power of the internet and their own consumer choices, protect themselves and demand accountability.