Fraud? You can bank on it
By Sue CameronPublished: October 23 2007 20:09 | Last updated: October 23 2007 20:09
[Copy of an article from the FT by Sue Cameron dated October 23 2007}
Should our banks be shouldering more of the blame for the soaring rise in plastic card fraud? Lawyer and computer expert Alistair Kelman believes they have a long history of ducking their responsibilities in this area. He warns that it could soon be crunch time on the fraud front.
In 1993 Mr Kelman went to court on behalf of members of the Consumers' Association, who had been the victims of fraudulent cash withdrawals from ATMs. The trouble was the banks were usually refusing to pay up. Although their code stated clearly that the onus was on them to prove that a withdrawal had not been fraudulent, they claimed that their system - which had only pins in those days, not chips - was pretty much infallible.
Yet Mr Kelman managed to win a legal ruling for consumers. In a court case that went almost unnoticed at the time - McConville vs Barclays Bank - the banks were forced to admit in open court that their systems were not infallible. They were also forced to admit that as a matter of law they could only debit someone's account if they could prove that the customer had authorised it - with card and pin for example - and that it was not fraudulent. Had the case been more widely known, there would have been little to stop every crook in the land claiming phantom withdrawals and the banks would have been hard pushed to prove they were lying. As it was, the banks settled at the door of the court with as many of Mr Kelman's clients as they could find.
Fast forward to February last year and the introduction in Britain of the supposedly safe chip and pin. The chip does make it harder for criminals to steal from ATMs here - but many other countries, including India, Pakistan, Morocco, the US and Canada, have not updated their machines to read microchips. All criminals need there is a cloned card and a stolen Pin. As a result, in the first six months of this year theft involving use of cloned cards overseas rose by 126 per cent to £108.8m.
Mr Kelman says the banks could have stopped this by making chip and pin cards unusable abroad. They evidently decided that the resulting lost business would outweigh the cost of the fraud - but that might not continue to be the case.
"The UK banks will be hit by further rises in this type of fraud," warns Mr Kelman, adding: "India and Pakistan are rising markets linked to the UK banking community. Unless the banks here and abroad take action this kind of known fraud will wreak havoc in the emerging economies."
Copyright Financial Times 2007