Banks Avoid Greater Fraud Liability, But Challenges Loom

Thomas Johnson spoke to Law 360 recently to comment on the landmark decision by the UK Supreme Court which unanimously held that banks do not owe a duty of care to customers tricked into instructing their bank to send money from their account to fraudsters.

Justices ruled that the core, contractual relationship that a bank has with its customers requires it to promptly execute its customer’s instructions and not to “concern itself with the wisdom or risks of its customer’s payment decisions.“…

Wednesday was the first time the court had been asked whether a bank’s Quincecare duty — which requires prompt payment execution except in certain cases — was triggered by authorized push payment fraud, a scam that parted Britons from £485 million ($627 million) of their money in 2022.

Lenders have objected to moves to expand the legal duty to cover the fraud, which in principle would have required them not to carry out payment instructions from a customer when they suspected he or she might have been tricked into authorizing payment.

The duty has only ever applied to an agent of a customer rather than the customer them-self. Banks are in breach of the duty if they fail to check whether the agent had authorization from the client to make the payment.

Barclays Bank UK PLC, and UK Finance, an industry group for lenders, have warned that a more expansive reading of Quincecare would be unworkable, forcing them to anticipate their customers’ instructions at every turn.

The court agreed. Expanding the scope of the legal duty to cases in which customers are deceived into directly authorizing payment is “inconsistent with the ordinary obligations owed by a bank to its customer,” Justice Leggatt…

“The law and morals make odd bedfellows, and this decision is a symptom of the court’s constitutional position, which is not to step into the shoes of Parliament and regulators,” Edwin Coe LLP barrister Thomas Johnson said.

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