In a class action lawsuit in Philadelphia seeking to hold a bank liable for facilitating telemarketing fraud, the plaintiffs have appealed denial of class certification and AARP filed an amicus brief in support of the victims.
In November 2007, a telemarketer convinced Reynaldo Reyes that he was eligible for a government grant that could be deposited directly into his bank account. Reyes provided information about his account, but instead of receiving a grant he found transactions deducting almost $400 that he did not authorize. The withdrawals overdrew his account and he was charged overdraft fees on top of the unauthorized charges. It turns out the telemarketing effort was part of a widespread scheme to transfer money directly from tens of thousands of legitimate bank accounts of unsuspecting victims to offshore accounts in the Caribbean, Canada, and India.
In his lawsuit against Zions National Bank, which facilitated the unauthorized transactions, Reyes pointed out that banks routinely flag such high volume offshore transactions in order to comply with money laundering laws and their own business needs. He says Zions, which initiated the transactions for the telemarketer, should have known these transactions were frauds but looked the other way because of the high fees these transactions were generating for Zions. Reyes argued that Zions deliberately ignored the problematic transactions and facilitated unlawful conduct.
Reyes’ class action lawsuit on behalf of himself and others who similarly fell prey to scammers seeks to hold banks accountable for processing transactions they should have known were frauds. A trial court denied his motion to certify a class action, ruling that in order to prevail Reyes would have to provide “absolute proof” of fraud in order to hold the banks liable. Moreover, the court found that the allegations of victimization differed too much in the details to support a class action.
AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court brief along with the Consumer Federation of America, asking a federal appeals court to review and reverse the decision denying class certification. The brief cites the numerous studies reviewing typical scams involving unauthorized transactions from bank accounts, and documenting how they specifically target older and low income people. Government regulators are not effective at preventing or remedying such fraud, leaving individuals such as Reyes to bring private actions to stop them. Moreover, the Federal Reserve Board has noted that banks have perverse economic incentives to participate in such fraud, rather than to prevent it. A class action, according to AARP’s brief, is essential to hold banks responsible and protect older people from this kind of fraud.
What’s at Stake
Studies by AARP, the Federal Trade Commission, and the National Association of Attorneys General indicate that as many as 85 percent of the victims of fraudulent telemarketing schemes are age 65 or older, making this case an important battleground in the war against schemes preying on older people. The court wrongly concluded that there were legitimate products being sold by the scammers; however, they were complete shams set up solely to steal money out of victim’s bank accounts.
The case is also important because of the lower court’s ruling on certification of class actions. Class actions provide a way to change widespread identical business practices all at once, without each victim being forced to come forward to file a separate case. The cost to file an individual lawsuit will likely exceed what each person would recover, making it not worth the expense or stress. Thus, individual damages may not justify the time and expense of a lawsuit, allowing perpetrators to make off with huge profits with the assistance of the banks.
Reyes v. Zions First National Bank is before the U.S. Court of Appeals for the Third Circuit.