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This question is NOT about credit card accounts. It is about checking accounts with US banks.


Suppose some US citizens have checking accounts with US banks, and the customers lose money due to either identity theft or a thief steals the customers' mobile phones (with logon info) and hacks into the customers' checking accounts.

In these cases, do US banks cover the loss of money for the customers' checking accounts ?

If yes, do the banks buy their own insurances to cover these cases ?


It seems that FDIC (Federal Deposit Insurance Corp.) only covers the money loss when the US banks fail, and does not cover identity thefts or hacking of the bank accounts.

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    Please don't use "identity theft". Your identity is not stolen. Banks are defrauded because they didn't properly identify you. But they want it to sound as if somebody has stolen something and it was not their mistake. Mar 22 at 23:17

2 Answers 2

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In these cases, do US banks cover the loss of money for the customers' checking accounts ?

Generally, yes. For electronic fraud, the Electronic Fund Transfer Act provides a $0-50 customer liability limit, depending on what happened. For example, a lost or stolen ATM card would have a $50 limit. There are reporting timelines which may increase the liability.

Card networks, like Visa and Mastercard, may also reduce this limit, e.g. with a zero-liability fraud policy.

For check fraud, banks are usually liable, save for customer negligence. The UCC dictates much of this.

If yes, do the banks buy their own insurances to cover these cases ?

A bank may self-insure against these losses, or it is common, particularly for small banks and credit unions to purchase insurance. For card fraud, this is often called plastic card insurance. A bank may purchase a blanket bond, also known as a financial institution bond, which is insurance that covers their liability from forged checks, in-person fraud, etc. There are a large number of casualties that can be covered, even reimbursement for a reward for information against a robber.

In any case bank examiners from the FDIC, NCUA, Federal Reserve, and other regulators will examine a bank's potential liability due to fraud and ensure adequate risk management/insurance is being provided.

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    I don't read the question as asking about fraud. Identity theft or "hacking" is not covered by anything in your answer, at least to the best of my understanding of these terms.
    – littleadv
    Mar 21 at 3:52
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    Bank crime involves a criminal stealing money. If a criminal hacks into a user's account electronically and transfers money, that's an EFTA case. If a criminal goes to a teller, makes a withdrawal, the teller asks them to slide their card and enter their PIN, boom EFTA. If a criminal tricks the teller into accepting a forged signature on a withdrawal slip, that's under unauthorized signatures in the linked insurance.
    – user71659
    Mar 21 at 4:00
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    It appears from my news feed, most of the time the bank claims the customer authorized it and fails to pay.
    – Joshua
    Mar 21 at 20:12
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    @Joshua Because when the bank accepts the fact the transaction is unauthorized and refunds the customer, it's not news.
    – user71659
    Mar 21 at 23:44
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While the other answer covers what I would call "traditional" theft, there is another kind of fraud not covered by the law at present. This revolves around the "instant transfer" system called Zelle.

Zelle is not like other money transfer systems. Let's talk about how money transfers between banks work.

Most banks transfer money between themselves using a system called Check21. It used to be that a bank would have to physically present a check to the issuing bank to receive funds. If you're old enough, you probably remember getting your bank statement mailed to you with all the checks that cleared that month. Check21 allowed for electronic delivery of that check via image (hence why "photo deposit" is now a thing).

The problem for checks and even direct deposit is they're still slow. Most other types of bank transfer happen through the Automatic Clearing House. The sending bank sends the money to the ACH and the next business day the receiving bank puts it in. Most banks hold ACH funds for a day (which is how ACH pays for itself, in that they can short-term loan that money). Some banks, as a perk, will clear ACH the same day they get it, but this is uncommon.

Enter the person-to-person transfer systems like Venmo, CashApp, PayPal, etc. These often transfer money faster between people. I can Venmo for free using nothing but my bank and ACH. Venmo makes money by lending that money like a bank (since ACH is free). Banks realized this was a huge potential source of money and decided to get into the act by forming Zelle on their own.

Zelle could instantly move money between bank accounts (often by using a linked phone number), but because it happens outside any Federal system, it had its own rules and, most importantly, virtually no safeguards against loss (I cut some quotes out for brevity)

Imposters claiming to be from Bank of America tell victims someone is draining their accounts.

The imposters tell victims to quickly use Zelle to send the money back to themselves.

In reality, they're sending the money straight to the scammers.

Each filed a claim with Bank of America -- and each was denied. The bank said victims had authorized the payments, so they were responsible for the loss.

This did not go unnoticed in Congress

In an effort to protect consumers and hold banks accountable for fraudulent transactions conducted using the bank-owned instant digital payment network Zelle, U.S. Senators Jack Reed (D-RI), Bob Menendez (D-NJ), Elizabeth Warren (D-MA), Sherrod Brown (D-OH), and Mark Warner (D-VA) are calling on the Federal Reserve Board, National Credit Union Administration (NCUA), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) to closely review and examine the customer reimbursement and anti-money laundering (AML) practices of depository institutions that participate in the Zelle network. The Senators are urging the federal agencies to coordinate their supervisory approach to Zelle and similar apps with the Consumer Financial Protection Bureau (CFPB).

This, in turn, prompted some changes to Zelle

Rather than being reimbursed directly from the banks, a method was developed for banks to pull money back from recipient accounts to refund defrauded Zelle users. After significant pressure from lawmakers and the CFPB, Zelle also made several changes to their policies announced in their August 2023 press release.

  • All of the 2,100 banks and credit unions within Zelle’s network must implement Risk Insights with Zelle which helps identify high-risk transactions.
  • Consumer reimbursement benefits for specific scam types.
  • Developing and publishing educational content about avoiding scams.

Zelle is still somewhat risky and harder to reclaim money from, but it's better with these reforms in place. Remember that banks have only limited liability for money lost via Zelle. It's still very possible to lose lots of money from a checking account with Zelle.

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