By Todd R. Weiss
JANUARY 19, 2006
ETrade Financial Corp. is now offering wide-ranging fraud and bill
payment protection to customers that use its online brokerage and
banking services to guard against user losses and bolster the safety
and reputation of its services.
In an announcement Tuesday, the New York-based company said its new
ETrade Complete Protection Guarantee will provide full coverage
against cybertheft losses for its online brokerage, banking and
lending customers, effective immediately. The guarantee is in addition
to the company's existing Web site security and procedural safeguards
for online transactions.
Under the policy, ETrade Securities LLC or ETrade Bank will cover the
full amount of any customer account losses that occur through
unauthorized online activity. In addition, if a customer's brokerage,
banking or loan payment is not sent as instructed, all related fees,
penalties or finance charges will be refunded. The company also said
it will not sell a customer's personal information to third-party
marketers for any purpose.
"Consumers should feel that their money is safe," said spokeswoman Pam
Erickson. "Whatever we can do [to encourage that safety] ... we're
going to do."
According to an ETrade-commissioned study of 507 adult ETrade
customers by research company Insight Express, 84% of the respondents
see online fraud as a serious problem, while 77% believe the primary
responsibility for online safeguards is with financial institutions.
For ETrade, however, the actual losses from online cybertheft have
been relatively small in recent years, Erickson said. In 2000, the
company lost an amount in the tens of thousands of dollars from fraud,
she said. Losses in 2005 were less than $2 million.
Consumers think the problem is much larger, however, so the company is
working to bolster consumer confidence with the new program. "If
consumers see it as a problem, it may preclude them from putting their
money into online accounts," Erickson said. "We want to preclude that
Brokerage accounts, unlike bank accounts, aren't protected by federal
banking insurance programs under current law.
The move by ETrade makes sense, according to several analysts.
"I think that as word gets out, it will definitely help them acquire
new customers," said Avivah Litan, an analyst at Stamford, Conn.-based
Gartner Inc. "It is a bold move -- consumers don't realize that
they=92re not protected" under current law if someone steals money from
their online brokerage account. "This is the kind of protection that
people are looking for. Consumers are very nervous."
Previously, if fraud occurred, consumers could only hope that their
brokerage firm would reimburse them for any losses, even though it
would not be required legally to do so, she said.
Dan Keldsen, an analyst at Boston-based Delphi Group, a Perot Systems
Co., called it a "fantastic" step for ETrade. "I just hope that this
means that the other online brokerages will follow suit. It's neat to
see that they're taking a proactive stance, at least protecting the
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