US judge backs bank against customer who sued over hack

US judge backs bank against customer who sued over hack

A US judge magistrate has ruled that a bank is not responsible for the loss of around $345,000 from a business customer account following a cyber-attack.

Magistrate judge John Rich has recommended that a US District Court in Maine grant Ocean Bank's motion for a summary dismissal of the complaint filed by Patco Construction Company.

Rich's order - first reported by BankInfoSecurity - comes after Patco Construction Company sued Ocean bank in the wake of a 2009 cyber-attack.

Malware was used to steal the firm's online banking credentials which the crooks then tapped to make ACH transactions worth nearly $600,000. Around $243,000 worth of payments were blocked by the bank once the fraud was discovered.

However, Patco sued Ocean for the remaining $345,000, arguing that the bank should have spotted the fraud and stopped it. The construction firm also argues that by not requiring customers to use multi-factor authentication, Ocean does not use best practice.

Ocean argued that having verified IDs, passwords and requested challenge response questions, it acted in good faith by processing the ACH payments and Patco was to blame for letting its details become compromised.

Rich concludes that, although Ocean could have done more to authenticate users, the law does not require banks to use the "best" possible security measures and customers are aware of what is on offer when they sign up.

Comments: (3)

Bruce Shirey
Bruce Shirey - The Rinaldi Group - San Diego 08 June, 2011, 15:21Be the first to give this comment the thumbs up 0 likes

Seriously? Does Magistrate judge John Rich have part ownership or family in Ocean's bank management?  Under this farce of a ruling, Heartland, TJX and others should be off the hook for their breaches AND be entitled to get the millions of dollars paid in fines back.  Bank customers, like Patco Construction expect, safety and security for their money, not some legal fine print or worse, a lame intereptation from this judge that the Ocean's bank policy is to "try really hard" to protect its customer assets.  

Michael Kyritsis
Michael Kyritsis - ACI - London 09 June, 2011, 08:57Be the first to give this comment the thumbs up 0 likes

This is different to the situation of Heartland, TJX, etc - in which card details were compromised beloning to people who had not signed up for any card services with those companies.

Patco Construction Company signed up for Ocean's banking services and accepted the online banking credentials.

If this gets enough press coverage Ocean might lose a lot of customers, presumably to banks that have implemented multi-factor authentication.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 June, 2011, 16:53Be the first to give this comment the thumbs up 0 likes

The popularity of Mint, OfferMatic, BillGuard and other services that directly access the customer's bank account on the basis of a simple username and password suggests that two factor authentication solutions haven't been implemented by many US banks so many years after it was mandated by FFIEC. Against this backdrop, it's interesting to note that, while the court ruling holds a bank liable for compliance with FFIEC's mandate, it considers Password + Security Question as adequate implementation of 2FA although most security industry professionals won't think so.