Here’s a pop quiz for you – if an unauthorized money transfer happens from your checking or savings account, what do you think is your liability?
(A) None. My bank will reimburse me
(B) If I report it quickly, then I’m not on the hook for anything
(C) No matter how promptly I report it, I am liable for up to a certain amount
If you chose (A), you are in for a rude shock!
What is your liability?
Let’s look at the what the law says. Electronic Fund Transfers are governed by Federal Reserve”s Regulation E and here’s what it mandates:
- If you report the activity within two days of the occurrence, you are liable for upto $50
- If you report after two days, you could be liable for upto $500
- If you report it after 60 days, you are not protected!
Read it again. No matter what, you are on the hook for up to $50, even if you report it right away!
Don’t confuse the protection offered by your credit card company with that of your bank. Credit card companies provide zero liability . (Edit: As Steve points out in the comments section, credit card companies choose to waive the liability, not a legal requirement). Most banks don’t, as they are not federally required to.
That is another reason never to use your ATM PIN while shopping!
Banks require paperwork mailed in and you have to make sure it reaches the bank within 60 days.
Now, some good banks offer a little more peace of mind if you report the fraudulent activity right away and not charge you any fees, but then this depends upon the bank’s relationship with you. This is not federally mandated. The larger the amount, the more hesitant a bank will be to refund the amount to you.
What about overdrafts because of a fraudulent transfer?
So someone siphoned off your money and your checks OD’d due to that. Now if you report the fraudulent transfer within the 2/60 day window, you are not liable for these fees. Banks are required to refund the overdraft fees. But if you did not opt-in for OD protection, you would be liable for check bounce fees from the merchant for whom the check was intended!
How to tell if there has been a fraudulent activity?
Unless you are Scrooge McDuck, you are not going to be checking your bank account everyday! The solution is rather easy and takes 5 minutes of your time.
STEP 1: Set up Alerts.
Most banks provide some sort of alerting mechanism to track your account activity. This is not standardized, some banks provide a lot of options to track every little transaction and some only a few options. But most banks that let you bank online will provide an alerting feature.
The alerting mechanism could be via email or via texts on your mobile phone or both.
STEP 2:Add the bank’s alerting email to your contacts list.
This is very important. Even if you are receiving alerts, chances are that your email’s spam filter might think this is spam due to the nature of these emails (automated, with words bank, account, amount etc.) and may add it to it’s filter after a few of these and one fine day you may stop receiving any alerts.
And what if your bank doesn’t have an alerting mechanism? Time to switch!
Here are few simple safety steps you can take to protect yourself online.
- Stop using IE and use Chrome atleast while banking online. IE being the most popular browser is frequently a target of hackers (and that IE has more holes than a block of swiss cheese, but that’s just my opinion!). For now, Chrome seems pretty solid. Or use a more obscure browser like Opera.
- Even if you know for sure an email is from your bank, don’t click on any links. Why? To make this a habit. Avoid clicking on links in any email that’s from a financial institution, known or unknown. Login to your account and get to the link.
- Create complex passwords. Most banks require this, but just in case!
- Don’t use the same password that you use for Facebook for your bank as well! In fact, your Facebook password should not be used for anything else! (Facebook doesn’t have the best track record when it comes to protecting your privacy)
- Goes without saying, if you use Windows, invest in a good anti-virus software. The one from Microsoft is actually free, so no excuse for not installing it. Mac users, we are good! (for now!).
- At one point, making users click on .EXE files was the most favored method of hackers to get access to your PC. Now that’s been replaced by PDF files. According to some reports the mighty Google in China was brought to its knees via a simple infected PDF file! (Is it a coincidence that Google has made Mac the preferred platform for its employees?). Am I suggesting not to read PDFs? No. Just don’t use Adobe PDF reader to view PDFs. There are safer alternatives.
- Don’t reply to Nigerian princes wanting to transfer their inheritance your account. Our banks are simply not equipped to handle such large sums of monies.