On Tuesday, Citigroup urged a federal judge to drop a lawsuit accusing Citibank of failing to reimburse customers targeted by online scammers.
Citigroup's Legal Challenge
Citigroup Inc. is under fire from the State of New York after a lawsuit filed by Attorney General Letitia James in January accused Citibank unit of lacking sufficient safety measures and security protocols, allegedly enabling fraudsters to exploit online and mobile banking platforms, including wire transfers and payment apps like Zelle and Venmo. This legal action underscores the mounting concern over financial fraud, which the Federal Bureau of Investigation reports led Americans to lose $12.5 billion in 2023.
Citigroup's Case Dismissal Request
As a response, Citigroup has moved to dismiss the case, branding it a misguided attempt by the Attorney General to alter federal law. The bank argues that the suit aims to amend the Electronic Fund Transfer Act (EFTA) to introduce new consumer protections, a change Citigroup believes should be addressed by Congress rather than through litigation. Citigroup also asserts that wire transfers fall under Article 4A of the Uniform Commercial Code (UCC), not the EFTA, where banks are exempt from covering losses if they adopt commercially reasonable security measures in good faith to verify customer identities, according to the Uniform Commercial Code, which is utilized by all US states.
The New York-based bank asserted that it has implemented such measures and prevents countless daily fraudulent transactions. Emphasizing that no system is foolproof against every scam, it argued against a lawsuit that could significantly disrupt "how banks have organized their policies and practices for decades."
James' office did not respond immediately to a request for comment.
New York AG's Lawsuit Claims
The lawsuit, filed in the US District Court for the Southern District of New York, alleges that Citi has overpromised and underdelivered on security and neglected to respond adequately to red flags, such as the use of unrecognized devices, changes in user names and passwords, and instances of phishing, which allowed scammers to steal millions of dollars.
In a statement, James said that banks are expected to be the most secure places to safeguard money. Yet, Citi's negligence has permitted scammers to steal millions from hardworking individuals. There is no justification for Citi's failure to safeguard accounts, and James' office will not excuse illegal conduct by major banks.
One customer reportedly lost retirement savings amounting to $40,000 after clicking on a text message link that appeared to be from Citibank.
James additionally alleged that Citibank coerced victims into signing affidavits that purportedly limited their ability to recover losses and rejected reimbursement claims without due consideration. The attorney general seeks Citibank to reimburse scammed New Yorkers, pay a civil fine of $5,000 per violation, and appoint an external monitor to examine bank records and locate victims.
The case is titled New York v. Citibank NA and is being heard in the US District Court for the Southern District of New York under case number 24-00659.
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