India: Boost To E-Payments - Customers Given Protection For Fraudulent Transactions

Last Updated: 26 July 2017
Article by Aaron Kamath and Huzefa Tavawalla
  • Customer not liable for amounts lost in fraudulent / unauthorized transactions where default not attributed to the customer, if reported to the bank within 3 working days.
  • Mechanism set out to determine customer liability arising out of unauthorized transactions based on time taken to report such transactions to the bank.
  • Banks to shadow reverse credit amounts lost by customers through unauthorized transactions within 10 working days from notification by the customer.
  • Onus of proving liability of customers arising out of unauthorized transactions lies with the bank.

Background

India's central bank, i.e. the Reserve Bank of India ("RBI") had issued a circular1 last week pertaining to customer protection and limiting the liability of customers in unauthorised electronic banking transactions ("Circular"). The Circular was issued pursuant to a recent surge in customer grievances relating to fraud and unauthorized transactions.

The objective of the Circular appears to be two fold - a clearer mechanism to determine and mitigate the liability of customers in the event of unauthorized transactions; and to ensure that banks devise policies, systems and procedures in promoting customer awareness on electronic transactions, resolving customer complaints and crediting amounts due to customers on occurrence of unauthorized transactions.

Salient Features of the Circular

Key highlights from the Circular are summarized below:

I. Reporting of unauthorized transactions

  • Banks must ask their customers to mandatorily register for SMS alerts and email alerts wherever available, for electronic banking transactions,
  • Banks must advise customers to notify the bank of any unauthorized electronic banking transaction at the earliest after occurrence of a transaction. The Circular provides that the longer the time taken by the customer to inform the bank, higher will be the risk of loss to the customer,
  • Banks must provide customers with 24x7 access through multiple channels (such as its website, phone banking, SMS, email, interactive voice response, dedicated toll-free helpline, reporting to home branch) for reporting unauthorized transactions that have taken place and / or loss or theft of payment instruments such as credit / debit cards,
  • The loss / fraud reporting system of the bank should ensure an immediate response is sent to customer acknowledging the complaint along with the registered complaint number,
  • Banks should not offer facilities of electronic transactions other than ATM cash withdrawals, to customers who do not provider their mobile numbers to the bank.

II. Liability of the customer

The Circular provides that the liability of a customer pursuant to the occurrence of unauthorized transactions should be determined based on the following events:

Customer liability

Events

Zero liability

  1. Contributory fraud / negligence / deficiency on the part of the bank – irrespective of whether the transaction is reported by the customer.
  2. Breach by a third party where the deficiency lies neither with the bank nor the customer but lies somewhere in the system, and the customer notifies the bank within 3 (three) working days of receiving the communication from the bank regarding the unauthorized transaction.

If any one of the above events occur, the customer will not be liable for amounts debited from their account from an unauthorized transaction.

Limited liability

  1. If the loss is due to the negligence by a customer, the customer would bear the entire loss until the customer reports the unauthorized transaction to the bank. Losses occurring after the reporting of the unauthorized transaction would be borne by the bank.
  2. If the responsibility for the unauthorized transaction lies neither with the bank nor with the customer, but lies elsewhere in the system and where there is a delay of between 4 (four) to 7 (seven) working days after receiving the communication from the bank on the part of the customer in notifying the bank of such a transaction, the per transaction liability of the customer will be limited to the transaction value or the amount in the table below, whichever is lower.
 

Type of account

Maximum liability of the customer

  • Basic savings and deposit accounts

INR 5,000

(approx. USD 75)

  • Other savings bank accounts
  • Pre-paid payment instruments and gift cards
  • Current / cash credit / overdraft accounts of micro, small and medium enterprises
  • Current / cash credit / overdraft accounts individuals with annual average balance (during 365 days preceding the incidence of fraud) / limit up to INR 25,00,000 (approx. USD 38,750)
  • Credit cards with limits up to INR 5,00,000 (approx. USD 7,750)

INR 10,000

(approx. USD 150)

  • Other current / cash credit / overdraft accounts
  • Credit cards with limits above INR 5,00,000 (approx. USD 7,750)

INR 25,000 (approx. USD 375)

Hence, the customer will be liable to a limited extent (as per the table above) for amounts debited from their account from an unauthorized transaction occurring under any one of the above events.

Liability as per the bank's policy

If the delay in reporting of the unauthorized transaction is beyond 7 (seven) working days.

It is pertinent to note that the Circular provides that banks may also at their discretion waive off any customer liability in case of unauthorized electronic banking transactions even in cases of customer negligence.

III. Reversal of amounts by banks to customers' accounts

In the event the customer's liability is zero / limited to certain amounts as per the table above, banks should credit (shadow reverse) the amount involved in the unauthorized transaction to the customer's account within 10 (ten) working days from the date of such notification by the customer (without waiting for settlement of an insurance claim, if any).

However, if the customer is found to be liable to a limited extent, such amount payable by the customer to the bank may be debited by the bank from the customer's account.

IV. Strengthening of policies, systems and procedures by banks

Banks should put in place:

  • appropriate systems and procedures to ensure safety and security of electronic banking transactions,
  • robust and dynamic fraud detection and prevention mechanisms,
  • mechanisms to assess risks resulting from unauthorized transactions and measure the liabilities arising out of such events,
  • appropriate measures to mitigate the risks and protect themselves against the liabilities arising therefrom,
  • systems to continually and repeatedly advise customers on how to protect themselves from electronic banking and payments related fraud,
  • Customer relation policies2 that define the rights and obligations of customers in case of unauthorized transactions.

V. Resolution of complaints

Banks should ensure that a complaint is resolved and the liability of a customer (if any) is established in accordance with the bank's policy, but no later than 90 (ninety) days from the date of receipt of the complaint. If such complaint is not resolved or customer's liability is not determined within 90 (ninety) days, the amount due to the customer as per the customer's liability should be paid to the customer.

The Circular provides that the burden of proving customer liability in case of unauthorized electronic banking transactions should lie on the bank.

Conclusion

India has seen a rapid increase in the use of digital payments post the demonetization era, with the value of transactions via debit and credit cards being INR 41,062 Crores (approx. USD 6 billion), mobile banking being INR 149,923 Crores (approx. USD 21 billion) and pre-paid instruments being INR 2,148 Crores (approx. USD 300 million), for the month of March this year alone.3

However, the Indian financial services sector has also coincidentally been prone to fraudulent / unauthorised transactions in the recent past. Approximately 3.2 million debit cards were compromised last year as several customers reported unauthorized usage of such instruments from locations outside India4.

The Circular issued by the RBI would aid in securing the trust of banking customers engaged in electronic transactions along with facilitating further use of electronic and digital modes of payments as opposed to traditional cash payments.

However, the Circular does not specify the recourse that a customer may have if the customer is aggrieved with the determination of his/her liability by the bank and if amounts are subsequently debited from his/her account owing to such liability. In such an event, the aggrieved customer may need to follow the general procedure prescribed under the RBI regulations, i.e. filing a complaint with the 'banking ombudsman5 for resolution of his/her grievance or undertake the filing of a civil suit.

Nevertheless, the introduction of this Circular is a welcome step reflecting a progressive approach by the Indian government to encourage electronic / online payments in India.

Footnotes

1 Circular on Customer Protection – Limiting Liability of Customers in Unauthorized Electronic Banking Transactions, dated July 6, 2017. Available at: https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11040. Last accessed: July 11, 2017.

2 To be displayed on the bank's website along with details of a grievance handling / escalation procedure.

3 Card and mobile banking volumes see decline, steep rise in UPI transactions, dated April 6, 2017. Available at: http://www.business-standard.com/article/economy-policy/card-and-mobile-banking-volumes-see-decline-steep-rise-in-upi-transactions-117040501530_1.html. Last accessed: July 11, 2017.

4 3.2 million debit cards compromised; SBI, HDFC Bank, ICICI, YES Bank and Axis worst hit, dated October 20, 2016. Available at: http://economictimes.indiatimes.com/industry/banking/finance/banking/3-2-million-debit-cards-compromised-sbi-hdfc-bank-icici-yes-bank-and-axis-worst-hit/articleshow/54945561.cms. Last accessed: July 11, 2017.

5 As appointed under The Banking Ombudsman Scheme 2006.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Aaron Kamath
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions