Doesn't my bank protect my business bank account?
Not necessarily. While many banks offer "zero-fraud liability" protection to their consumer banking customers (in addition to the protections under Regulation E), businesses do not commonly enjoy this same benefit. Also, unlike major credit card companies, many banks do not have sophisticated fraud detection systems that can detect and alert business owners to suspicious or unusual activity in their business bank accounts. For example:
“If you go two states over and use your credit card to buy gas, the credit card company calls you to say it’s out of the norm, but most banks have no idea,” said Mark Patterson, whose construction company, Patco, in Sanford, Maine, was robbed of $588,000 in 2009 by ZeuS Trojan, a form of malware. “Our bank had no alarms to say, hey, over five consecutive nights, Patco’s wiring money all over the country — to California, Florida, places we don’t normally send money, and definitely not from an I.P. address outside the U.S.”2
Businesses are frequently victimized by bank fraud and cyber crime. In its "2011 Business Banking Trust Study", the Ponemon Institute surveyed business owners and executives of 533 small and medium sized businesses nationwide regarding such banking fraud losses. The results were revealing:
- 56% of the businesses surveyed had experienced fraud in the preceding 12 months, and 61% of those had been victimized more than once
- Of those that experienced fraud, 75% suffered online account takeover and/or online fraud
Fraudulent transaction methods included credit and debit card fraud, check fraud, fraudulent wire transfers, fraudulent ACH, and fraudulent bill pay transfers
When the study addressed the issue of fraudulent electronic transactions and wire transfer fraud:
- Survey respondents reported that their banks detected and stopped the fraud in only 22% of the cases. In 78% of the cases, the business' banks failed to catch the fraud and the money left the account.
- The business' banks were able to recover all of the stolen money in only 10% of the cases
- In 60% of the cases, the defrauded businesses suffered losses
The business' banks were unable to recover funds in 68% of the cases. In respect to the unrecovered funds:
- Only 37% of the businesses surveyed reported that their bank provided some reimbursement of unrecovered funds. 31% reported that they received no reimbursement at all.