House Standing Committee on Finance (February 13, 2024)
ISSUE: Fraud and FCAC oversight of unauthorized transactions

FCAC expectations for unauthorized transactions

• FCAC oversees the compliance of regulated entities with federal regulations as they relate to unauthorized transactions, in particular debit and credit card transactions. Generally, any banking or credit card transaction that a consumer didn't make or approve is an unauthorized transaction.
• FCAC's expectations with respect to investigations into allegations of unauthorized credit and debit card transactions are as follows:
  • FRFIs must weigh all relevant factors before finding the consumer liable, regardless of the method or technology used to process a credit or debit card transaction.
  • Specifically, FRFIs must conduct an investigation to determine whether circumstances beyond the cardholder's control (such as over-the-shoulder snooping, coercion, theft of the card, or system failure) resulted in an unauthorized transaction.
  • FRFIs may not rely solely on authentication technologies to discontinue or refuse to initiate an investigation into allegations of unauthorized transactions. For example, the consumer's liability cannot be based solely on the fact that the transaction was made using the correct chip and PIN.

Liability

• Key questions:
  • Who is liable when fraud happens? 
  • What recourse is available to consumers victimized by fraud?
• In the federally regulated banking sector, consumer protections address unauthorized credit and debit transactions. These include liability protections:
  • for credit card transactions made without the cardholder’s consent ($50 maximum liability)
  • for debit transaction losses due to situations beyond your control. For example, technical problems or someone used your card when you had already reported it as lost or stolen. (zero liability)
• Liability for fraudulent transactions is a complex area.
• It is especially fraught in fund transfers, including those where the source or destination is outside of Canada.
• Some of these issues have been before the courts. This includes a recent case in BC about a bank’s knowledge of a prevailing fraud and its duty to warn the consumer.
  • (e.g., Victim can sue bank over fraudulent transfer, B.C. court rules | Investment Executive.
  • Legal discussion of the issues: How Canadian courts have ruled on liability in wire transfer fraud | Insights | Torys LLP:

• The bottom line is the problem of fraud is growing in size and magnitude. So, we must ask ourselves if the safeguards we have are sufficient, and what more needs to be done.
• This is an area where technology should be able to help, for example with digital ID.
• We must move beyond situations where one party can say “it’s not my fault or responsibility” while another party becomes a victim.

General fraud messaging for consumers:

• FCAC recognizes the importance of addressing matters of fraud. Incidents of financial fraud have increased worldwide and can have a devastating impact on the individual.
• In support of its consumer education role, FCAC provides unbiased and fact-based information to help consumers understand real estate fraud as well as on how to protect themselves from financial fraud and scams.
• The Canadian Anti-fraud Centre is the lead at the federal level on fraud protection. It collects information on fraud and identity theft and provides information on scams affecting Canadians. It also provides tips to help protect people from fraud, and step-by-step information for Canadians on what to do if they are a victim of fraud.
• Canadians who believe they are victims of fraud should:
  • contact their financial institutions and any other companies where they think accounts may be affected
  • file a report with their local police
  • report the incident through the Canadian Anti-Fraud Centre's Fraud Reporting System
  • contact Canada’s two main credit bureaus: TransUnion and Equifax, and ask them to put a fraud alert on their credit report
  • for title fraud: contact their provincial or territorial land registry office
• March is Fraud Prevention Month. There will be an education and awareness campaign co-chaired by three federal fraud prevention partners: the Competition Bureau, the Royal Canadian Mounted Police and the Canadian Anti-Fraud Centre.

Complaints: Consumers who have experienced fraud may also file a complaint with their bank.

• First, all Canadian banks are required to have complaint handling procedures that are effective, accessible and timely.
• Second, if the consumer is dissatisfied with the bank’s response to their complaint, they have the right to submit their complaint to an approved External Complaints Body for an independent and impartial review.
• FCAC does not resolve individual complaints but oversees the External Complaints Bodies’ and the banks’ compliance with their complaint handling requirements.
• Consumers may also submit complaints directly to FCAC. These complaints are reviewed for information that can assist in fulfilling FCAC’s mandate.