There are lots of malicious actors lurking around the internet looking to defraud people and businesses alike. One of the best ways to protect your business from a debt collection scam is to put practices in place that protect you and your clients.
Imagine your company has a customer that pays in installments through ACH debit or direct deposit. Then, one day, a business-savvy hacker penetrates your email database and sees the emails to your customer. The hacker emails your customer impersonating your company and advises them your company has changed bank accounts. Your customer is told to send the next installment to the “new” company bank account.
Your company has no policy on confirming the account change, so the customer takes the email at face value and sends the next installment payment on the due date to the “new” company bank account. When your company does not receive the expected payment, you contact the customer and inquire as to the payment’s status, only to be told that the payment was wired elsewhere, and the customer refuses to make the payment twice.
What Recourse Does Your Company Have Following a Debt Collection Scam?
If the customer refuses to make the payment, your first instinct may be to file an insurance claim under crime protection or fraud protection policy. But in the eyes of the insurance company, your company wasn’t the victim that suffered the loss. It was actually the customer, who was defrauded when it sent the money to a hacker-controlled bank account, depriving the customer of funds meant for the customer’s obligations.
In the end, even though the hacker impersonated your company, your company did not actually suffer the loss. It just did not receive its expected payment. Funds transfer protection insurance is intended to protect the funds of the insured — your company — from being sent to an unknown party based on fraudulent instruction. While there was a fraudulent instruction, it was sent to the customer who is not the insured party.
The customer, upon learning they made a payment to a fraudulent party, should file a claim with their insurance company. Similarly, insurance for fraudulently induced transfers provides coverage for loss of funds resulting from a fraudulent transfer — such as when funds are sent from the insured to a third-party person or company. These policies require the insured party verify the authenticity and accuracy of the instructions received by the customer in the event of requests to send funds to another account, such as by a phone call.
Although it may seem unfair, there’s little recourse for your company — besides the customer. The customer may understandably object to making a payment they thought they already paid. However, you still have the right to seek recourse against the customer who must seek out their own coverage from their own insurance company.
For more information about debt collection or to discuss your business’ needs, contact Frank, Frank, Goldstein & Nager for a consultation.
