IIn November 2021, John William Pollard, a retiree living in Philadelphia, wrote a check to Verizon for $84.83 to pay a phone bill. It was stolen in the mail. The amount was changed to $45,678.12, paid to a person named Olivia Wallace and deducted, according to a legal complaint filed on behalf of Pollard and his wife Patrice.
The Pollards had just deposited a large sum of money into their Wells Fargo bank account, with which the check was issued. Therefore, they did not immediately realize that the money was missing from their account. It wasn’t until Verizon notified the couple that they hadn’t received payment over the phone that the Pollards say they noticed the fraud and reported it to Wells Fargo in early 2022.
More than two years later, the Pollards have still not recovered the stolen money from the bank.
Wells Fargo says it has no obligation to return the money. He claims, in a letter to the Pollards, that they only reported the stolen check more than two months after it was deposited. The bank states that it informs its customers that they “must file a timely complaint for any suspected fraudulent transactions on their accounts” within 30 days of a fraud or forgery event. Courts have ruled that banks can reduce the time customers have to report check fraud to just two weeks.
The case, which is currently pending in U.S. District Court in Pennsylvania, highlights a legal loophole that consumer advocates say leaves bank customers vulnerable to check and wire fraud. Consumers are protected from fraud in many electronic transactions by the Electronic Funds Transfer Act (EFTA), which gives people 60 days from receiving a statement to report unauthorized transactions. But checks and wire transfers are not covered by EFTA and are instead covered by the Uniform Commercial Code (UCC), a set of laws that governs U.S. commercial transactions.
The UCC says consumers have one year to report check fraud. But it also allows such terms to be changed “by agreement”, which essentially means that banks can shorten the grace period as they see fit. They do this by informing customers that the terms of their banking contract are changing and giving customers the option to close their account if they do not agree to the new terms. Many customers do this without even reading the terms of the changes. (Who has time to read 40 pages of a bank deposit user agreement?) But with a simple click, customers can destroy their own protections against fraudulent transactions. (Wells Fargo says the 30-day reporting schedule in its deposit account agreement hasn’t changed in more than 30 years.)
Some bank account agreements reduce the grace period for reporting fraudulent transactions to 14 days from the transmission of your bank statement. All the UCC says is that changes to the user agreement should not be “irrational,” and courts have ruled that 14 days is reasonable, says Carla Sanchez-Adams, senior attorney at the National Consumer Law Center.
As a result, customers may be out of luck when they report that money has been fraudulently withdrawn from their account. Many people don’t closely monitor the transactions in their online bank accounts or look at the checks they’ve written. “Unfortunately, people don’t check their accounts as often as they should,” says Sanchez-Adams, “so they don’t find out until after the time period set out in their account agreement.”
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Changes to bank deposit account contracts are common – many banks use them to restrict customers’ ability to resolve disputes in court, instead mandating arbitration. (Three-quarters of banks use account agreements to compel arbitration, a Pew analysis found.)
The banks’ decision to reduce the grace period comes as the incidence of check fraud in the US grows. In February 2023, the Financial Crimes Enforcement Network (FinCEN) issued an alert to national financial institutions to alert them to the rise in check fraud. In 2022, financial institutions filed 680,000 Suspicious Activity Reports with FinCEN to report potential check fraud, nearly double the previous year.
The Pollards say Wells Fargo should have detected the fraudulent check in the first place and notified them. They say they had never issued a check for a value close to $45,000 and therefore the bank should have flagged the transaction.
The Pollards allege that Wells Fargo initially told them they would get their money back. But in August 2023, the bank told the couple that they had not notified the bank of the fraud within 30 days of their January 2022 account statement and had therefore lost any request for their money back. “If the customer does not report any issues within this time frame, the bank account statement will be considered correct and the customer will approve all transactions,” the bank’s senior advisor wrote in a letter.
In a statement provided to TIME, Wells Fargo says it understands the frustration victims feel after a fraud incident and that it tries to raise awareness about fraud and scams. However, the bank states, “we inform all our customers that they must file a complaint in a timely manner for any suspected fraudulent transactions on their accounts” and that the banking industry follows an established process to help customers recover funds.
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Larry Smith, an Illinois-based consumer attorney, says clients don’t even need to have bank checks vulnerable to check fraud. Smith says his client, Rogelio Arroyo, had an account at Fifth Third Bank that did not include personal checks. But in December 2021, a scammer somehow got Arroyo’s account number, wrote fake checks and stole $14,000 from Arroyo’s account, Smith says. The forgeries were very crude: in one case, the check number differed on the same piece of paper. However, Arroyo has not recovered a dime from Fifth Third, according to a pending legal complaint filed in Illinois, where Arroyo lives. (He was traveling out of the country when the alleged fraud occurred.)
“It’s becoming an even bigger fallacy to think you’re protected by putting your money in a bank,” says Smith.
Fifth Third said in a statement to TIME that it is “committed to helping customers who have experienced fraud,” but that its account rules require customers to notify the bank of problems or disputes in a timely manner. The bank told Arroyo it would not conduct any investigation because he did not dispute the fraudulent transactions within 30 days, according to the complaint. (The bank says it does not comment on active litigation.)
Consumer advocates are pushing for more protections against check fraud, including changing what is covered by EFTA. In January 2024, New York Attorney General Letitia James sued Citibank, claiming it failed to protect users from fraud, costing New Yorkers millions of dollars. The complaint argues that electronic transfers should be covered by EFTA.
Citi did not return a request for comment. Citi told Reuters that the process would “abruptly and dramatically disrupt the way banks have organized their policies and practices for decades.” If James wins, the case would be a “game changer” for client safety, Smith says.
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However, consumer advocates are pushing for EFTA to include wire transfers and checks. But it’s not clear that consumers would necessarily benefit from a change, because the laws are so complex that few people know their rights when fighting banks. “It is extremely complicated for an unsophisticated consumer to know what protects me and what law applies,” says Sanchez-Adams.
It’s something that anyone who has ever fought with a bank knows well. Patrice Pollard sent and received notarized statements to Wells Fargo and dealt with numerous customer representatives; she keeps every piece of paper in case she needs it. “They really make you think you’re crazy,” she says. Her husband opened the bank account in 1999 at a different bank, which later merged with Wells Fargo. Despite the ongoing lawsuit, they still have their retirement funds and other money in the bank. When the case is resolved, Pollard says, the couple will take every penny and put it elsewhere.
“Some friends suggested a credit union,” she says. “But there’s always the old shoe or sock.”
This story originally appeared on Time.com read the full story
