California Banker Issue 2 2025

Legislature Focuses on Induced Fraud and Financial Institution Liability

By Jason Lane, Senior Vice President and Director of Government Relations, California Bankers Association

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B 909, introduced by Assem blymember Schiavo, seeks

es, statutory penalties, and attorneys’ fees for noncompliance. The bank has the burden of proof to disprove the allegation of induced fraud. These requirements are operation ally unrealistic given the complexity of fraud cases and the need for due diligence. Moreover, the bill extends joint liability to other institutions that may have merely received trans ferred funds, creating a sweeping net of legal exposure across the financial system. SB 505, authored by Senator Rich ardson, introduces new consumer protections in response to the rise of fraud in digital wallets and stored value platforms. The bill requires operators of these platforms to reim burse users for losses resulting from fraudulently induced transfers, where a consumer is tricked into sending money under false pretenses. The legislation defines these transfers as those initiated due to manipula tion, deception, or coercion, even if the consumer technically authorized the transaction. By shifting liability to the platform, SB 505 challenges the commonly accepted principle that holds consumers responsible for authorized payments — even when made under fraudulent influence.

The bill mandates multiple channels for customers to submit reimburse ment claims, including via app, web site, email, phone, or mail. Operators must investigate claims within 10 business days or provisionally credit the user while extending the inves tigation up to 45 days. No police report is required to initiate the pro cess. Once a fraud is confirmed, re imbursement must occur within one business day. While the legislation exempts banks, SB 505 represents a frightening shift — treating fraud losses as a platform responsibility rather than a consumer risk.

to expand protections for elderly and dependent adults who fall vic tim to fraud by creating significant and problematic liability exposure for banks and financial institutions, fundamentally altering long-standing standards of consumer responsibility, due process, and operational feasibil ity in fraud detection. Among other things, this measure re defines “fraudulently induced trans actions” and limits consumer liability for them to just $50 — or the value lost before the bank had reason to suspect fraud — regardless of how the transaction was authorized. Fi nancial institutions would bear the burden of proof to show that the transaction was not fraudulent or that the consumer failed to report it in time. This inversion of liability and investigative burden ignores the fact that many such scams are engineered to appear legitimate and are inten tionally designed to evade detection, even by well-trained fraud depart ments. The bill also requires banks to inves tigate and determine within 10 busi ness days whether a consumer is a victim, with potential treble damag

Jason Lane is Senior Vice President, Director of Gov ernment Relations for the California Bankers Associa tion and manages Califor nia state tax policy for the association, which involves

analyzing legislation and regulatory activity, and the development of policy positions for the asso ciation. Lane is one of three lobbyists at CBA and, in addition to his primary focus on taxation, he also lobbies on behalf of the association on issues re lated to the state budget, and consumer lending legislation.

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