2025 Regulatory Summit

1 st Advantage Facts

• Studco was defrauded via a “business email compromise” scam: emails purporting to be from its supplier asked it to pay to a new account via ACH. – The account number matched the sender’s instructions; the name did not (account belonged to someone else). – 1 st Advantage used an automated system (DataSafe) that generated many mismatch warnings daily, but nobody reviewed those warning reports. • UCC § 4A-207(b)(1) – If a payment order names a beneficiary by both name and account number, and the name & number refer to different persons, the beneficiary bank may rely on the account number if it does not know they refer to different persons.

aba.com | 1-800-BANKERS

15

Fourth Circuit Reverses District Court

• Found 1st Advantage negligent: opened account despite ID red flags, failed to monitor ACH alerts, and should have caught mismatch between name and account. District court : • Under UCC 4A-207, banks only liable with actual knowledge of mismatch. • ³6KRXOG KDYH NQRZQ´  HQRXJK • Efficiency requires reliance on account numbers. • Risk of fraud falls on the party dealing with the scammer. Fourth Circuit :

aba.com | 1-800-BANKERS

16