Canadian Bank Seizes $3,000 from Scam Victim’s Account to Reimburse Itself

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In Brief
  • Toronto resident Justin Smith had $3,000 debited from his account by his bank without his consent.

  • "Right of Setoff" is the little-known banking principle applied by Scotiabank, that effectively gives ownership of all depositors' funds to the bank.

  • Using this clause in the bank's TOS, the bank is able to legally claw back any debts owed to it.

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Canada’s Scotiabank has helped itself to $3,000 (CAD) from one of its customers’ accounts after he fell victim to a job recruitment scam.

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Justin Smith of Toronto, who is a longtime customer of Tangerine – Scotiabank’s online subsidiary – has spoken about his ordeal with the bank in a story that illustrates the pitfalls of fiat banking compared to cryptocurrencies.

CBC News reported that Smith recently fell victim to a sophisticated recruitment scam that saw him inadvertently deposit a forged check worth $3,000.

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When Smith realized that he had been duped and informed the bank about the issue, the bank invoked a little known clause in its Terms of Service to deduct the amount from a separate account of his.

Smith’s Fraud Nightmare

The trouble began when Smith was contacted by fraudsters who set up an elaborate scheme to make him think he had landed a work-from-home data entry position at the retail company Sobey’s.

He received a convincing-looking employment contract along with a dud check for $3,495 and instructions to make a $3,000 payment to a company called Tech Insight Services, ostensibly to supply the equipment.

When Smith deposited the check, it looked genuine enough to fool even the bank, which credited his account with the amount. Smith then sent the requested $3,000 payment to the scammers, unaware that he was being strung along. He then received another payment request for $3,500, and this set alarm bells ringing in his head. He contacted the bank to inform them about his suspicions, but it was too late at this point for the bank to reverse the $3,000 transfer.

It was at this point Smith says, that Tangerine then requested that he cover the $3,000 with money from his other accounts with the bank. He declined to do this, and then the bank simply took the money anyway, debiting his tax-free account of $3,000 without his consent.

Scam Fiat Deposits Belong to the Bank

Smith’s nightmare story is not only emblematic of a customer-last culture within traditional banking, but also not at all rare. In his case, the clause within his account’s terms and conditions that permitted the bank to do this is called “Right of Setoff.”

This is a principle that states that customer funds in a bank account actually belong to the bank, and the customer is in fact a creditor of the bank. This then means that in the event of a debt owed to the bank, it can offset this debt using any of said customer’s funds that are deposited with it.

“Right of Setoff” and the associated violations of customer privacy are in sharp contrast to the reality of cryptocurrency custody where nobody but the wallet owner has access to the funds in the wallet as long as they keep the cryptographic keys safe.

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David is a journalist, writer and broadcaster whose work has appeared on CNN, The Africa Report, The New Yorker Magazine and The Washington Post. His work as a satirist on 'The Other News,' Nigeria's answer to The Daily Show has featured in the New Yorker Magazine and in the Netflix documentary 'Larry Charles' Dangerous World of Comedy.' In 2018, he was nominated by the US State Department for the 2019 Edward Murrow program for journalists under the International Visitors Leadership Program (IVLP). He tweets at @DavidHundeyin

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