His bank raided his account to pay to scammers
Banking laws authorize other accounts to seize funds
Justin Smith had a one-two punch of poor luck.
Next the Toronto guy was duped by a $3,000 work scam. Then his longtime bank, Tangerine, helped Smith in his tax-free savings account to recover what he lost in the scam.
"You keep your money in the bank because you think it's safe," he said. "And they're treating money like it's theirs, and they're just moving it around to cover themselves.
Tangerine is Scotiabank's online affiliate offering no-fee savings and checking accounts.
Here's how the double episode unfolded:
Smith, who works as a delivery person, applied to work as a data entry clerk for the Sobeys grocery chain. He was offered the job and was delighted to buy a laptop, phone system, headphones and numerous other office equipment along with a check from his new employer for $3,495.
"It all looked totally authentic and real," he said.
Smith searched out the names of the people who handled his recruiting and checked their profiles on LinkedIn to confirm that they worked at Sobeys. But when he got an invoice for office equipment from a company named Tech Insight Services and was told by Sobeys hiring manager to make a $3,000 payment immediately, he promptly submitted an e-transfer.
"I only had $800 or so in my chequing account at the time, but after depositing the Sobeys cheque, I had over $4,000," he said.
Smith didn't know that the whole process was a complex fraud. The website where he applied, the purported recruiting managers, the cheque—all were fakes. His work application wasn't sent to Sobeys. He dropped into a snare set to swindle hopeful job seekers. Even the check fooled Tangerine; the bank immediately deposited it to Smith's account.
Alarm bells didn't start ringing until the next day when Smith's allegedly new employer told him to send another $3,500 for a new desk.
"At this point, I became suspicious because no one spends that kind of money on a desk," he said. "I called up Tangerine and I said 'OK, I deposited a cheque yesterday, you guys let me send the money. I'm concerned that this cheque is going to bounce.'"
Deep in fine printing
Smith soon discovered that the scammers had approved his e-transfer, and a Tangerine representative said it was too late to cancel it.
"He asked 'Do you have money in your other accounts to make up for that and I told him I didn't want the bank to take money from those other accounts."
Since his savings tax-fee account was registered with the federal government, Smith assumed it was untouchable. He's been wrong.
Deep in the fine print of the agreements, many consumers obtain a clause known as the "right of setoff," when opening a bank account, often referred to as the right of "offset." It states that the bank has the legal power to seize funds from a debtor or loan guarantor. Although that right can vary depending on the product or plan, it is in most agreements; usually, RRSPs and registered retirement income funds are excluded.
This means that if the bank accepts a check or other form of deposit that does not pass as planned and a customer withdraws or transfers the money, the bank has made a bad loan. It also has the right to access money in other accounts kept by that customer to recover the loss. No need to get permission, or even warn the customer beforehand.
Shortly after the bogus Sobeys check bounced, Tangerine took $3,000 from Smith's account.
Smith sent the bank two complaint letters demanding compensation, but was told each time that the bank is not responsible for his loss and that he should report the scam to police.
Employment scams became widespread during the pandemic, the Canadian Anti-Fraud Center said. CBC News reported a similar June scam involving Sobeys. In that scenario, Bank of Montreal, the victim's bank, noticed the scam and didn't give the invoice.
Sobeys is aware of the fake websites bearing its name saying it is monitoring the web 24/7 to try to shut them down. In a statement, the company said anyone "looking to join the team or confirm the legitimacy of a job posting," should review jobs.sobeyscareers.com.
After contacting CBC's Go Public team, Tangerine said it would reimburse Smith for the $3,000 and also pay $250 for a credit monitoring service.
In an email sent to Smith shared with CBC News, Emery Sziraky, head of the bank's client response department, said We have conducted a comprehensive review of your recent experience with Tangerine and we deeply regret that we did not meet your expectations."
The bank also emailed a statement to Go Public, stating it was "pleased" to settle the issue to Smith's satisfaction. The statement included a warning about fraud, saying "work[s] closely with the Canadian Anti-Fraud Centre, the Canadian Bankers Association, law enforcement, and counterparts at other financial institutions," to ensure clients are safe.
But Doug Hoyes, a Kitchener, Ont., insolvency trustee, said all Canadians should be aware of how normal it is for banks to hack consumer accounts to recover their own losses.
"It blindsides people," said Hoyes. "I've seen it happen thousands of times."
Hoyes said banks usually keep massive checks on new customers' accounts; they are unable to access funds until the check clears. But banks also expand credit for long-standing, trusted customers and make funds available instantly.
Hoyes said most customers enjoy instant access to deposits.
"In most cases what the bank did is very helpful; 'Hey, you put the money in, you can use it.' But in this case, it backfired," he said.
A five- or even three-day hold on Smith's check would stymied the scammers, but he was a long-time Tangerine customer. He opened an account in the late 1990s when, before a rebranding, the bank was still called ING Direct. So he got instant access to funds.
He also advises his own customers, all of whom have money issues, to set up bank accounts at two separate financial institutions. "It is wise to have your assets at a different bank than your debts, if it's possible," he said. That way, if a payment goes wrong, the bank cannot tap into other accounts on paper, he explained.
Smith, still ready to pursue a new career, is thankful that Tangerine has agreed to do the right thing."
"I don't want to make myself out to be a victim here," Smith said. "I'm just trying to help other people not become a victim of these scammers or quite frankly, become the victim of their bank."
Business Insider is the fastest growing business news site in the US. Our mission: to tell you all you need to know about the big world around you. The BI Video team focuses on technology, strategy and science with an emphasis on unique storytelling and data that appeals to the next generation of leaders – the digital generation.