Attorney General Letitia James’ Court Victory Against Citibank Over Fraud Protections

By Esther Claudette Gittens | Editorial credit: lucasImages / shuttterstock.com 

New York Attorney General Letitia James recently achieved a major legal milestone in her ongoing lawsuit against Citibank (Citi), with a federal judge rejecting Citi’s motion to dismiss the case. The lawsuit, which alleges that Citi failed to adequately protect its customers from fraud and illegally denied reimbursements to victims, will now proceed in court. This ruling reinforces the responsibilities financial institutions have under consumer protection laws, particularly the Electronic Fund Transfer Act (EFTA), and highlights the critical issue of bank accountability in safeguarding consumer funds.

Key Elements of the Case

The lawsuit, filed in January 2024, accuses Citibank of failing to implement adequate fraud prevention measures, leaving New Yorkers vulnerable to cybercriminals and financial scammers. Attorney General James argues that Citi’s lax security protocols, ineffective fraud detection systems, and inadequate customer support contributed to millions of dollars in financial losses for customers. Despite these losses, the lawsuit claims that Citi misled consumers regarding their rights under federal law and wrongfully denied reimbursement claims.

Judge Paul Oetken of the United States District Court for the Southern District of New York ruled that Citi misapplied the EFTA, which provides legal protections for consumers affected by unauthorized electronic transactions. This decision affirms the Attorney General’s position that banks must take full responsibility for unauthorized transfers and highlights a widespread concern about corporate accountability in the financial sector.

Implications for Consumers and Financial Institutions

The ruling in favor of Attorney General James carries significant implications for both consumers and financial institutions. For Citi customers, it offers hope for restitution and emphasizes that banks have a legal duty to protect deposits and reimburse unauthorized transactions. If the lawsuit ultimately succeeds, it could lead to:

1. Increased Consumer Protections: The case sets a precedent that could push other banks to strengthen fraud prevention measures and improve their responses to consumer fraud claims.
2. Financial Restitution: The Attorney General seeks restitution for affected customers, meaning those who have suffered financial losses due to Citi’s alleged failures may receive compensation.
3. Regulatory Scrutiny: The case may prompt increased regulatory oversight of financial institutions’ compliance with anti-fraud regulations, potentially leading to stricter enforcement and more stringent security protocols across the industry.

For financial institutions, the lawsuit serves as a warning that non-compliance with federal consumer protection laws can result in legal action, reputational damage, and financial penalties. Banks may need to reassess their cybersecurity measures, fraud response strategies, and customer service protocols to avoid similar lawsuits in the future.

Related News:

Attorney General James Sues Citibank for Failing to Protect and Reimburse Victims of Electronic Fraud

Citi Maintains Poor Security and Anti-Fraud Protocols, Leading
to Millions of Dollars in Losses for New York Account Holders

NEW YORK – New York Attorney General Letitia James today sued Citibank, N.A. (Citi) for failing to protect and refusing to reimburse victims of fraud. The lawsuit alleges that Citi does not implement strong online protections to stop unauthorized account takeovers, misleads account holders about their rights after their accounts are hacked and funds are stolen, and illegally denies reimbursement to victims of fraud. The Office of the Attorney General (OAG) has found that the bank fails to respond to fraudulent activity appropriately and quickly. As a result of Citi’s lax security, New York customers have lost millions of dollars, and in some instances, their entire lifesavings, to scammers and hackers. Attorney General James is seeking to hold Citi accountable for failing to protect its customers and require the company to pay back defrauded New Yorkers with interest, pay penalties, and adopt enhanced anti-fraud defenses to prevent scammers from stealing consumers’ funds. 

“Banks are supposed to be the safest place to keep money, yet Citi’s negligence has allowed scammers to steal millions of dollars from hardworking people,” said Attorney General James. “Many New Yorkers rely on online banking to pay bills or save for big milestones, and if a bank cannot secure its customers’ accounts, they are failing in their most basic duty. There is no excuse for Citi’s failure to protect and prevent millions of dollars from being stolen from customers’ accounts and my office will not write off illegal behavior from big banks.”

Harm to New York Customers

Citi is one of the largest banks in the United States and maintains checking and savings accounts for millions of consumers nationwide, including through online and mobile banking. The lawsuit alleges that scammers are able to steal tens of thousands of dollars from Citi customers because the bank does not implement strong data security and anti-breach practices. As a result of Citi’s lax security protocols and procedures, ineffective monitoring systems, and failure to respond in real-time and properly investigate fraud claims, New Yorkers have lost millions to scammers. Customers have lost their life savings, their children’s college funds, or even money needed to support their day-to-day lives as a result of Citi’s illegal and deceptive acts and practices.

One New Yorker had $40,000 stolen from her retirement savings account. In October 2021, the customer received a text message that appeared to be from Citi instructing her to log onto a website or call her local branch. The customer clicked the link in the message but did not provide additional information as requested in the text message. Afterwards, the customer called her local branch to report the suspicious activity but was told not to worry about it. Three days later, the customer discovered that a scammer changed her banking password, enrolled in online wire transfers, transferred $70,000 from her savings to her checking account, and then electronically executed a $40,000 wire transfer, none of which was consistent with her past account activity. For weeks, the customer continued to contact the bank and submit affidavits, but in the end, she was told that her claim for fraud was denied.

Another New Yorker had $35,000 stolen from her account. She was reviewing her online account and found a message that her account had been suspended and was instructed to call a phone number. She called the number provided and a scammer told her that he would send her Citi codes to verify recent suspicious activity. The scammer then transferred all of the money in the customer’s three savings accounts into her checking account, changed her online passwords, and attempted a $35,000 wire transfer. Citi attempted to verify the wire transfer by calling the customer, but she was working and did not see the call at the time. Less than an hour later, the scammer attempted another $35,000 wire transfer, which Citi approved without ever having made direct contact with the customer. She lost nearly everything she had saved, and Citi refused to reimburse her. 

Insufficient Online Banking Security

The OAG found that Citi’s systems do not respond effectively to red flags, such as scammers who are using unrecognized devices, are accessing accounts from new locations, or are changing banking passwords or usernames. Additionally, Citi systems do not flag and stop efforts to transfer funds from multiple accounts into a single account and then send tens of thousands of dollars out the door in minutes. Citi also does not automatically initiate investigations or report fraudulent activity to police or law enforcement authorities when consumers first report it to Citi.

In addition, Citi fails to appropriately respond to notifications of fraud by its customers. When victims contact the bank to report fraud, Citi leaves them on lengthy telephone holds, allowing scammers to continue their fraud. Additionally, Citi does not implement sufficient measures to protect consumers from future unauthorized transactions until they visit a local branch. Citi representatives falsely told consumers that their accounts were secure and often promised that their money would be returned, although the bank did not take immediate steps to recover stolen funds. Citi also falsely tells consumers that they need to visit local branches and execute special affidavits detailing the scams that led to their losses — information Citi then used to blame consumers and deny their claims. 

Attorney General James alleges that because Citi makes wire transfers available to consumers online and through mobile banking apps, Citi must reimburse victims of fraud under the Electronic Fund Transfer Act (EFTA), similar to when banks reimburse victims of electronic credit or debit card fraud. Under EFTA, banks such as Citi are required to reimburse their customers for money in their accounts that is lost or stolen through unauthorized electronic payments. However, Citi illegally exploited a narrow exception in these laws to deny consumer claims for reimbursement, resulting in millions of dollars in losses for New York consumers. Through this lawsuit, Attorney General James is seeking to stop Citi’s deceptive practices and to collect restitution for victims who were denied reimbursement in the last six years, penalties, and disgorgement. 

Attorney General James encourages all consumers who have lost money to scammers who hacked into their online or mobile banking, whether the bank accounts were with Citi or any other bank, to report their experiences to OAG’s Consumer Frauds Bureau.

Today’s lawsuit is the latest action by Attorney General James to hold big banks accountable. Last month, Attorney General James led a coalition of 20 attorneys general in submitting letters to the federal Office of the Comptroller of the Currency and Consumer Financial Protection Bureau urging both agencies to ensure that national banks cooperate with investigations being conducted by state attorneys general. In April 2022, Attorney General James led a multistate coalition of attorneys general in calling on the CEOs of JPMorgan Chase, Bank of America, U.S. Bank, and Wells Fargo to eliminate all overdraft fees on consumer bank accounts. 

This matter is being handled by Assistant Attorney General Chris Filburn with the Consumer Frauds and Protection Bureau. The Consumer Frauds and Protection Bureau is led by Bureau Chief Jane Azia and Deputy Bureau Chief Laura Levine, and is a part of the Division of Economic Justice, which is overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.

Citi’s Defense and Potential Legal Strategies

Citibank has consistently denied wrongdoing and sought to dismiss the lawsuit by arguing that the EFTA does not cover wire transfers made through their consumer accounts. However, the court’s ruling confirms the applicability of the EFTA, potentially weakening Citi’s defense. Moving forward, the bank may attempt the following legal strategies:

1. Settlement Negotiations: Citi could consider settling the case to avoid a lengthy court battle and further negative publicity.
2. Appealing the Decision: Citi may seek an appeal to challenge the court’s interpretation of the EFTA and delay potential penalties.
3. Reform in Internal Practices: To demonstrate good faith, Citi may voluntarily improve its fraud prevention systems and consumer reimbursement policies.

Broader Context and Public Response

The lawsuit against Citibank comes amid growing concerns over financial fraud and cybersecurity threats affecting banking customers nationwide. High-profile data breaches and increasing incidents of identity theft have placed pressure on banks to prioritize consumer security. Public response to Attorney General James’ lawsuit has been largely supportive, with advocacy groups praising her efforts to hold Citi accountable and push for stronger consumer protections.

Additionally, this case aligns with broader regulatory efforts aimed at increasing transparency and accountability within the financial sector. With consumer trust in financial institutions being paramount, cases like this reinforce the need for banks to operate with integrity and comply with legal obligations to protect their customers.

Conclusion

Attorney General Letitia James’ lawsuit against Citibank represents a crucial step in holding financial institutions accountable for consumer protection failures. The recent court decision allowing the case to proceed underscores the importance of legal safeguards such as the EFTA and reinforces the expectation that banks must prioritize their customers’ financial security.

As the case unfolds, it will be critical to monitor how Citi responds and whether the lawsuit sets new standards for fraud prevention and consumer rights in the banking industry. If successful, the lawsuit could bring justice to affected customers, ensure stronger regulatory enforcement, and push financial institutions to take greater responsibility for safeguarding their clients’ funds.