- Key Insight: Romance scams have proliferated in recent years, highlighting a systemic failure of financial institutions to protect vulnerable customers, including the elderly and those with intellectual disabilities.
- What's at Stake: In this case, two financial firms promptly refunded the money, but five major banks — including Goldman Sachs and JPMorganChase — are fighting the case in court.
- Supporting Data: Romance scams have exploded in recent years, with reported losses soaring to $1.4 billion in 2023, up from just $547 million in 2021.
An elderly man with dementia was systematically drained of $337,000 in a sophisticated, Cyprus-based "romance scam" that some banks failed to stop — and instead are retaining high-powered defense lawyers to litigate.
The victim, Alan Cutler, 72, was a computer security expert in Pennsylvania whose cognitive decline from frontotemporal dementia made him vulnerable, according to his attorney, Jeffrey Katz. Cutler lost his life savings to an AI-enhanced "romance" website based in Cyprus, with the money processed through seven financial institutions.
Now the banks are spending far more to litigate the fraud claims than the value of the fraudulent claims themselves, Katz said.
"Romance scams are a systemic problem that affects a huge swath of Americans," he said. "These banks are just too big to care."
Katz was hired by Cutler's three adult children to qualify their father for Medicaid. Katz discovered the scope of the fraud, which took place from 2022 to 2024, and documented the romance scam to ensure that Cutler, currently living in a geriatric care facility, didn't lose his eligibility for Medicaid.
"He spent all his money on the romance scam and he has no money to pay for his care," said Katz, an elder law attorney in Bethesda, Maryland. "Whatever money we recover in this action would potentially go back to either the nursing facility or the state of Maryland to reimburse them."
After the fraud was discovered, Katz sued AstraSoft Projects Ltd, a Cypress-based company that operates romance websites MySpecialDates.com and okamour.com, which his lawsuit states is an international criminal enterprise targeting U.S. consumers.
Lawmakers have also taken notice. The House Financial Services Committee's subcommittee on financial institutions Thursday held a hearing on combating fraud, and subcommittee chair Andy Barr, R-Ky., said the problem is serious and getting worse, but cautioned against simply requiring banks to reimburse fraud claims, because that could perversely incentivize customers to claim legitimate transfers were fraud.
"Fraud and scam losses are not abstract statistics — they represent retirement savings wiped out, college funds drained, and small business savings accounts emptied overnight," Barr said in his prepared remarks. "At the same time, we must also guard against proposals that could unintentionally fuel more scams."
Given his condition, Cutler's case is an extreme example. But romance scams — sometimes called "pig butchering scams" in a grotesque reference to a hog that is fattened up before being slaughtered — are increasingly common. Indeed, the underworld committing these frauds has become
The Consumer Financial Protection Bureau has
Banks are the first line of defense against fraud, and consumers rely on them to look for and root out unusual behavior indicative of fraud, such as large transfers to unverified recipients. Katz alleges in his lawsuit that the scam orchestrated by Astrasoft Projects rotated transactions across multiple accounts to keep the volume of charges at any single bank below the threshold for fraud detection.
Scammers rotated transactions through seven different banks to stay under fraud-detection radars, he said. They pulled $8,000 from one account in a single day, made 16 charges in a single hour, and, in one case, 157 transactions in a single day, documents show.
Regulation E error resolution notices to all seven institutions. The banks' responses to those notices, however, varied radically.
Two financial firms — PayPal and Woodforest National Bank, a
By contrast, five banks are fighting the fraud claims, including Barclays, Citizens Bank, Goldman Sachs, JPMorgan Chase and USAA Federal Savings Bank. The banks argue that Cutler "authorized" the transfers — even while impaired by his dementia diagnosis — and they are not liable for the losses. Each of the five banks rejected the Reg E error resolution process. Cutler's suit alleges that instead of investigating and providing provisional credit, as required under EFTA, the banks retained major law firms and sought to contest the claims through costly litigation and arbitration.
Some attorneys active in fraud resolution say the banks' oppositional stance is par for the course.
Noah Kane, an attorney at Consumer Attorneys, said EFTA requires banks to investigate and return unauthorized transfers, regardless of contributory negligence. In cases where the victim is tricked, the bank may still face liability if it does not investigate, he said. Consumer protection statutes often do not provide relief in every instance, and "banks may act based on their ability to recover the money," from the original scammer, he said.
Kimberly Sutherland, global head of fraud and identity at LexisNexis Risk Solutions, said financial institutions have tools to detect fraud patterns and understand the behavior of their customers.
"They use techniques to look at device intelligence, to look at behavioral biometrics, how someone is interacting with their device, as well as the frequency and location of a transaction," Sutherland said.
The post-CFPB regulatory gap
At the core of the legal battle is a regulatory gap in Regulation E, which primarily covers unauthorized transactions. Romance scam victims typically authorize the transfer of funds and struggle to get repaid under
Under Reg E, institutions have 10 business days to investigate errors or unauthorized transactions, though the investigations can be extended to 45 or 90 days if they provide provisional credit. Provisional credit is a major issue that can keep financial institutions from resolving disputes, lawyers say.
"Banks don't want to cough up $50,000," said Kane.
Katz alleges the banks failed to meet their statutory duty to investigate and respond within the required timeframes and provide provisional credit.
Moreover, because the regulation was written in 1978, long before social media, the Internet and international romance scams, some suggest it needs to be updated for the modern age.
"When EFTA was passed, nobody envisioned a world where people didn't have to go into a bank to make an electronic fund transfer," said Rebecca Coleman, a senior attorney at the law firm Goodwin and a former senior litigation counsel at the CFPB.
A plaintiff who has been scammed may not win on a fraud claim based on a financial firm not investigating the dispute unless the victim can provide evidence showing the bank acted recklessly or should have come to a different conclusion.
"Many courts hold that you don't need to prove actual damages to prove a willful violation or recklessness," said Kane, who is not involved in the litigation.
Katz also is challenging the banks' efforts to force arbitration, arguing EFTA claims are regulatory and not covered by arbitration clauses. Notably, the case is unfolding in an environment where the CFPB has
"The question for the institutions involved is whether their Reg E compliance posture was developed for a world with federal oversight or without it, and whether those are the same thing," Katz said.
However, the defense by each of the five banks is proving extraordinarily expensive. The total disputed fraud across all five banks amounts to $296,000, with JPMorgan Chase having issued a partial refund, Katz said.
With "Big Law" firms billing up to $1,250 per hour, the banks' legal defense in denying the claims is estimated to cost more than the money they refuse to reimburse.
Barclays, for example, retailed law firm Holland & Knight to defend itself against Cutler's suit, which claims $20,000 was fraudulently transferred from his account. A Barclays spokesperson declined to comment.
As for the other banks, Cutler's family filed a complaint against Goldman Sachs with the New York Department of Financial Services regarding its Apple Card, Katz said. Goldman submitted a written response to DFS that stated it had investigated 820 Apple Card transactions totaling $92,444.60 — transactions directed to identify romance scam merchant sites — and found "no suspicious, fraudulent, or unauthorized" activity. DFS closed its file on January 5. A Goldman spokesman had no comment.
As for the other banks, JPMorgan Chase provided partial refunds of roughly $7,800 and has filed a motion to dismiss the case, a spokesman said. It has retained McGuireWoods to defend against the remaining $83,408 in disputed transactions.
Citizens Bank, a unit of $222.7 billion-asset
USAA Federal Savings Bank closed Cutler's account with an internal "Charge-Off Close," designation, but refused to remediate $39,000 in disputed claims, Katz said. USAA has retained Hinshaw & Culbertson. It also did not respond to a request for comment.
Katz said the defensive and litigious posture from the banks is counterproductive for the banks themselves, and comes as more of these kinds of scams are proliferating.
"Spending a ton of money on this case makes no logical sense," said Katz. "The banks' general motive is to run down plaintiff's counsel, drag it out and take as long as they can."
Kane said financial institutions can do more to protect consumers from scams.
"They're fiduciaries," Kane said. "It's important to find ways to make sure that they have adequate protections for the most vulnerable in our society."
Sutherland at LexisNexis said romance scams are among the most challenging to untangle, in part because victims are reluctant to acknowledge that they've been duped.
"It's such a painful type of scam that often goes underreported, and it's just the tip of the iceberg," she said. "We're talking about a significant financial impact to those individuals that get involved in romance scams."
