Customers, not banks, are responsible for checking that the person or company they're sending payments to is genuine, the banking watchdog says.
In a warning issued on Fraud Awareness Week, which aims to raise Kiwis' awareness of the risks of being scammed, the Banking Ombudsman says there's a common misunderstanding that banks are responsible for all payments sent by their customers.
But banks aren't obligated to monitor customers' accounts to stop them sending money to scammers, it says.
"The customer is responsible for checking [if] the intended recipient is genuine," Banking Ombudsman Nicola Sladden said.
In a recent example, a woman known only as Antoinette sent $150,000 - her life savings - to a New Zealand-based remittance company (a company specialising in transferring money overseas), with the intention it would be invested.
Upon discovering the scam, the woman contacted her bank but it was unable to get her money back. Recognising the woman was a victim of a scam, and in recognition of her loss, the bank offered the woman $1000. Rejecting the offer, the woman took her complaint to the Banking Ombudsman.
The bank should've noticed who the money was sent to and stopped the transaction, the woman said.
But the Banking Ombudsman said the woman told her bank to make payments to a legitimate remittance company - and it had followed those instructions.
"We told Antoinette we would not be able to uphold her complaint and she should accept the bank's offer."
Banks expected to follow up on 'red flags'
Unless they're negligent - for example, their card or PIN number is shared - banks have a general duty to reimburse customers for unauthorised transactions - those that come out of their account without their consent.
When customers authorise payments that are fraudulent, banks are expected to act with 'reasonable care and skill'. This includes following up on red flags, for example, where several investments are broken early, a customer is unwilling to respond to questions about a transaction, or its purpose indicates fraud.
As an example, a bank was ordered to refund $11,000 in credit card transactions to an older customer after his son called to warn them his father was a romance scam victim.
Believing the scammer was genuine, the man made a series of international transfers via Central America - a total of $60,000 over two months, despite warnings from his bank.
After his son called to notify the bank, the man used $11,000 in cash advances from his credit card to send to the scammer.
The Banking Ombudsman said it was satisfied the bank "acted reasonably" and the customer was "sufficiently warned". But when the son phoned the bank to say his father was still caught up in the scam, the bank "should have done more".
Those who think they've lost money to a fraud or scam are advised to call their bank urgently.
"When a customer advises the bank they have been the victim of fraud, banks are expected to take prompt action to try and recover the funds - regardless of whether red flags were present or not at the time of the transaction," Sladden added.
Recovery room scams, in which scammers prey on existing scam victims, are also on the rise. Posing as regulators or Government agencies, the scammers offer to get money back in return for a 'recovery fee'.
According to Cert NZ, in the year ending March 31, 2021, online scams and fraud cost Kiwis $4.5 million. It's seen a rise in reports of scammers offering technical support.
"If you’re ever in doubt about the authenticity of a phone call offering support for your laptop or mobile device, it’s best to hang up and contact the organisation directly via the information on their website," Cert NZ Director Rob Pope said.
Kiwis can keep themselves safe by being wary of 'too good to be true' deals. They're also urged not to share personal information with unknown third parties, both online and over the phone.
Personal accounts should be locked down with long, strong passwords, it's advised - and where possible, two-factor authentication should be used.
Those who suspect a scam, or believe they are victims, are advised to contact their bank and the Police, and report it to Cert NZ or Netsafe. Additionally, the Banking Ombudsman is a free, independent service for those unable to find a resolution with their bank.
