Dear Committee Members:
As a representative of Pacific Southwest Bank, I respectfully submit the attached examples of our experiences with ATM and check fraud. Pacific Southwest Bank is a South Texas Bank with 35 locations throughout the Southern region of Texas.
In the area of check fraud, the greatest number of cases we have experienced, this year, involve mail theft and computerized check generation. The attached Exhibits I and II will detail some of these cases.
The vast majority of cases of electronic access device fraud, that we have experienced this year, involve customer negligence with PIN numbers and mail theft. The attached Exhibits III, IV and V are some specific examples of these types of fraud.
As the electronic access device usage broadens, with the emergence of debit cards and smart cards, we can anticipate a much greater opportunity for loss under the current regulations governing these devices.
We, respectfully, request your review of our examples of losses through electronic access device fraud and check fraud and we are willing to assist in finding solutions to the multitudes of problems from these types of fraud. The solutions must cover the areas of relief for the victims as well as relief for the bank.
Thank you for the opportunity to present our views.
Beginning in April 1997 and continuing through today, Pacific Southwest Bank has experienced large losses due to checks fraudulently obtained from mail boxes and/or trash bins. The chief elements in this theft include:
The above case has been turned over to the local Police Department and to the Postal Inspector. It is believed that there may be up to twenty-five (25) individuals involved in this mail theft ring and that much of the money is used to support drug use. Two of the individuals involved were arrested at one of our banking offices on August 5th. However, there are many more involved with the ring which is evidently operating in a hundred mile radius beginning in Victoria, Texas and ending in Corpus Christi, Texas.
Our bank has personally experienced a $7,500.00 loss due to this fraud and we are told that many of the banks in this area, particularly those with large branch networks, have experienced this or a greater loss.
On or about February 3, 1997, it was brought to our bank's attention that one of our banks customers was producing non-standard checks on his personal computer. The checks were being printed with the words "BANK CHECK" on the top of the check and also included a purchaser field on the bottom left side of the check. The customer actually printed his bank account number with us on the check through the use of a MICR toner cartridge. Some of these elements made the check infer characteristics of a bank cashier's check or other official check. These checks were presented to various shipping and delivery companies for receipt of goods. These same companies required that goods be paid for via bank check or money order so that funds were guaranteed. These companies accepted these checks with the belief that they were bank checks. However, when they were received by our bank for payment, we returned them due to insufficient funds in the customer's account.
On February 5, 1997 we advised the customer via certified letter that we would be closing his account due to this activity.
Our loss on this check fraud was $2,120.40. Many of the merchants who accepted these checks also experienced loss.
On or about May 6, 1997, a customer came into our office to advise us of possible ATM fraud on their account. The actual disputed amount was $2,111.00. The customer was asked if she knew who may have fraudulently obtained her ATM card and how her PIN number could have been obtained. She mentioned that her niece had lived with her for several months and that she had been in the car with her several times when she made ATM withdrawals. The customer also had the PIN number written down and had left it in her house, but was not sure whether the niece could have had access to the PIN number. We attempted to obtain a picture of the individual performing the fraudulent withdrawals, but the ATMs used in the transactions did not have cameras.
After reviewing the case and Regulation E, we credited the customer for $2,111.00. However, we did feel that she had been negligent with her PIN number and that this case could be repeated under fraudulent pretenses by other customers if the results were shared by the customer with others. With the owners of ATMs not being required by law to furnish cameras, the burden of proof falls on the bank in many of these types of cases with the bank generally sustaining a loss.
On or about July 7, 1997, a customer came in to our office to advise us of possible ATM theft on his account. The alleged loss was $3,656.01. During the course of our investigation we discovered that the customer had two individuals, a mother and a teenage daughter who were both non-resident aliens, living in his home. The mother accompanied him frequently on shopping excursions where the customer admitted that she could have watched him key his PIN into access device terminals. Along with PIN knowledge, she also had access to his card because she lived in his home. After obtaining a photograph from a grocery store's security camera (none of the ATMs used had cameras), we discovered that it was the daughter who had evidently been using the card and the mother had shared the PIN number with the daughter. They would evidently retrieve his card at night and return it to his wallet before he discovered it missing the next morning.
After reviewing the case and Regulation E, we credited the customer for $3,606.01 even though we strongly felt that there was PIN negligence involved. In addition to this loss, we incurred various other costs including film processing and long distance phone expenses which brought our actual loss in the case to around $4,000.00.
In April of 1997, we mass mailed ATM cards to customers as part of our acquisition of fourteen (14) Bank Of America branches. Our standard procedure was to mail the card, then mail the PIN number two or three days later. The customer then had the option to use that PIN number or to come in to one of our offices to change the PIN number. Unbeknownst to our bank, a ring of individuals were robbing mail boxes of ATM and debit cards, credit cards, checks, bank statements and any other vital financial information.
Our loss due to stolen cards and PINs during this time was approximately $6,500.00.
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