Citigroup Claims New York Attorney General’s Online Fraud Suit Is ‘Misguided’

Bob Van Voris, Bloomberg News

The logo of Citigroup Inc. at the bank's office in Paris, France, on Monday, Feb. 27, 2023. Citigroup is building a new trading floor in Paris as the Wall Street giant prepares to nearly double its staff in the French city. Photographer Benjamin Girette/Bloomberg Photographer: Benjamin Girette/Bloomberg , Bloomberg

(Bloomberg) -- Citigroup Inc. asked a judge to throw out a suit by the State of New York over online protections for consumers, arguing the case was a “misguided attempt” by Attorney General Letitia James to rewrite federal law.

James sued the company’s Citibank unit in January, claiming that it hasn’t enacted sufficient safety measures and security protocols to prevent fraudsters from stealing money through online and mobile banking, including wire transfers and payment apps such as Zelle and Venmo.

The state is targeting the bank’s data security measures at a time when consumers are losing billions to financial fraud and scammers are using increasingly sophisticated tools, including artificial intelligence, to dupe victims. Americans lost $12.5 billion to online fraud in 2023, according to the Federal Bureau of Investigation.

The bank on Tuesday called James’s suit an attempt to modify the Electronic Fund Transfer Act in order to add new consumer protections. And it argued wire transfers are covered by an entirely separate law, Article 4A of the Uniform Commercial Code.

“The proper forum for pursuing the goals NYAG seeks to achieve in this litigation is in Congress, not a courtroom,” Citigroup said in a court filing Tuesday.

The bank claims EFTA governs electronically-initiated fund transfers by consumers, including ATM transactions, but not wire transfers. And under the UCC, banks that follow reasonable security procedures to verify customer identities aren’t responsible for losses.

Stopping Phishing Difficult

The bank said it has adopted “robust countermeasures” to tackle attempts to take money from customers’ accounts. But the bank said it is particularly difficult to catch phishing scams, in which customers are tricked into providing security information such as codes or passwords, to scammers.

“Citibank devotes substantial resources to combating online fraud and to protecting its customers, and will continue to do so,” it said in the court filing. “Citibank’s significant anti-fraud practices have stopped countless fraudulent transactions and protect consumers from scammers every day.”

The state is seeking an order forcing Citigroup to provide an accounting of all customer claims for lost money connected to unauthorized payment orders and debit authorizations that were denied in the last six years. It’s also seeking restitution and damages for the customers, plus penalties.

The case is New York v. Citibank N.A., 24-cv-00659, US District Court, Southern District of New York (Manhattan).