Right for the Wrong Reasons: Analysing the New Zealand Banking Ombudsman's Approach to Authorised Push Payment Fraud

Abstract

Since time immemorial, people have been trying to trick, con and scam other people. Fraud is not a modern phenomenon. But modern fraudsters are an order of magnitude more technologically sophisticated, and are costing people and businesses billions of dollars globally. This article deals with a particular type of fraud: authorised push payment. Authorised push payment fraud happens when a victim is tricked into transferring money from their own account into that of a fraudster. It is uniquely challenging because, to their bank, the victim appears to have requested and approved the fraudulent transaction. In Philipp v Barclays Bank, the United Kingdom Supreme Court held that, unless a bank has actual knowledge of fraud, its common law duty is simply to execute its customers' instructions. Failure to do so will leave the bank prima facie liable for breach of mandate. By contrast, the New Zealand Banking Ombudsman Scheme requires banks, when on notice of "a real possibility that a customer is being scammed", to "make inquiries or warn the customer". I argue that these two approaches are irreconcilable, and this irreconcilability—combined with uncertainty as to when a bank will be "on notice"—creates confusion for both banks and their customers. Accordingly, I suggest Parliament should intervene by enacting new legislation that (i) requires banks to reimburse most authorised push payment fraud victims, and (ii) prevents banks from being liable at common law for taking reasonable fraud prevention steps.