Sal’s presentation focused on the legal regime for allocating liability for unauthorized fund transfers, including wire transfers, ACH transactions, and SWIFT transfers.  He discussed several key and recent cases under UCC Article 4A that have grappled with the breadth of the “security procedure” defense, applied the UCC test for determining whether a bank’s procedures are “commercially reasonable,” and addressed circumstances where banks were considered to have or have not acted in “good faith.”  He covered applicable regulatory guidelines issued by the Federal Financial Institutions Examination Council and the New York State Department of Financial Services, including recent developments on reporting cybercrime.

Sal’s presentation also addressed the continuing trend in the payment card arena in which fraud liability is shifting from issuers to acquirer/merchants under card network rules and recent suits brought by issuing banks against merchants for data breaches.   (For an overview of the evolving payment card system and developing loss allocation, see Sal Scanio’s prior article, Payment Card Fraud, Data Breaches and Emerging Payment Technologies, XXI Fidelity L.J. 59 (2015)).

Finally, Sal outlined a number of practical measures that can be taken by financial institutions to reduce their legal and compliance risk.

For further information, contact Salvatore Scanio at sscanio@ludwigrobinson.com or 202-289-7605.

The theft of payment cards is a top target in data breaches.  Recent data breaches involving theft of payment card records from merchants include Home Depot (2014, 56 million payment cards) and Target (2013, 40 million payment cards), among numerous other companies.  Fueled by major data breaches, payment card fraud is escalating.  In 2014, the total amount of direct payment card losses to criminals incurred by issuers, merchants, and acquirers was estimated to be $16.31 billion worldwide, an increase of 19 percent over 2013, according to the The Nilson Report, a payments industry newsletter.  Meanwhile, the payment card landscape is changing rapidly, with new technologies designed to provide faster and safer transactions.

Sal Scanio’s recent article Payment Card Fraud, Data Breaches and Emerging Payment Technologies, XXI Fidelity L.J. 59 (2015) provides an overview of the evolving payment card system and nature of payment card fraud.  The article discusses current and developing loss allocation under federal law and card network rules, and how, in the event of payment card theft as a result of a data breach, loss allocation is being shifted in several developing areas, including Payment Card Industry (PCI) Data Security Standards, consumer class action litigation, claims by issuing banks against merchants, and card network fines and assessments.  The article also examines how emerging payment technologies in the form of EMV chip card technology, Near Field Communication, tokenization, and encryption are being implemented in varying degrees, and discusses their expected impact on payment card fraud.

For further information, contact Salvatore Scanio at sscanio@ludwigrobinson.com or 202-289-7605.