US Judge Junks Citigroup Appeal to Dismiss Lawsuit

HIGHLIGHTS:

• US Judge dismisses Citigroup appeal vs. lawsuit which accused the company of failing to protect and reimburse customers from online scams.
• Citigroup said it was disappointed over the decision, saying the law does not cover wire transfers
• The lawsuit seeks to reimburse customers who were denied compensation on top of a $5,000 civil fine per violation.

Photo by Ivan Samkov on Pexels

A federal judge on Tuesday thumbed down Citigroup Inc.’s appeal to dismiss a lawsuit that claimed it failed to protect consumers from online scammers and refused to reimburse affected individuals.

In a decision, US District Judge Paul Oetken in Manhattan said that Citigroup’s banking unit Citibank must face the lawsuit filed by New York Attorney General Letitia James which claimed that the bank violated a 1978 federal law concerning electronic wire transfers, among others.

The Electronic Fund Transfer Act aims to protect consumers from sophisticated frauds involving technologies they may not understand, leaving banks in a better position to shoulder the risks of fraud.

Citibank Argues Law Excludes Wire Transfers

For its part, Citibank expressed its disappointment over the decision and argued that the law expressly excluded wire transfers.

It said it was already evaluating the next steps to address the case.

Last year, a spokesman for the company said that banks “are not required to make clients whole when those clients follow criminals’ instructions and banks can see no indication the clients are being deceived.”

It also underscored that the Electronic Fund Transfer Act excludes wire transfers.

However, Oetken said in his 62-page decision that Citibank’s reading “would operate in derogation of the statutory purpose.”

“The industry-standard practices we employ have long been recognized as satisfying applicable law,” Citibank said.

Meanwhile, James said the decision would help her office ensure that Citigroup follows the law to protect customers.

“When New Yorkers deposit their money in a bank, they expect it to be kept safe from scammers and thieves,” the attorney general argued in a statement.

James sued Citibank in January 2024, saying that scammers stole millions of dollars from Citibank customers because its security systems could not investigate red flags such as unrecognized devices, changes in usernames and passwords, and “phishing.”

James cited for instance a customer who allegedly lost $40,000 after clicking a text message that appeared to be from Citibank.

James also accused Citigroup of coercing customers into signing affidavits that limited their ability to recoup losses, and then summarily rejected reimbursement claims.

The lawsuit seeks to reimburse customers who were denied compensation over six years. This would be on top of a $5,000 civil fine per violation.

Citigroup has acknowledged that online wire fraud is a real problem that society is facing but said that its systems stop countless fraudulent transactions every day.