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Abhay Nevagi & Associates

ZERO LIABILITY FOR CUSTOMER IN CASE OF UNAUTHORIZED TRANSACTION

RBI CIRCULAR DATED 6TH OF JULY 2017

RBI introduced a circular on 06/07/2017 which primarily dealt with the Role of Banking Institutions and Liability of the Customers in case of unauthorized transactions or Banking Frauds. The circular was titled as follows “CUSTOMER PROTECTION – LIMITED LIABILITY OF CUSTOMERS IN UNAUTHORIZED ELECTRONIC BANKING TRANSACTIONS”. As the title clearly suggests, the objective of RBI to introduce such a circular was to protect ordinary citizens from any kind of unauthorized electronic banking transactions

Provision 6 of the said Circular speaks about ‘ZERO LIABILITY’ for Customer in the following cases:

  • Contributory fraud – negligence – deficiency on the part of the Bank;
  • Third Party breach – wherein the customer notifies Bank about unauthorized transaction within 3 working days;

WHEN IS THE CUSTOMER LIABLE?

As per the provisions of the RBI Circular dated 06/07/2017, a Customer shall be liable for the loss due to unauthorized transaction only when the loss occurred was due to the negligence of customer, for ex: sharing payment credentials. Any loss after informing the bank though shall be borne by the bank. Similarly, in case, there is a delay of 4-7 days on the part of the Customer to inform the Bank about the said unauthorized transactions, the liability of customer shall then be restricted to value of the said transaction.

SHADOW-REVERSAL

As per the provision under para 9 of the said RBI Circular dated 06/07/2017, on being notified by the customer about the unauthorized transaction, the bank shall be mandatorily required to transfer amount involved in such unauthorized transactions to the account of customer within 10 working days through shadow reversal.

ROLE OF BANKS

The said Circular specifies the role of Banks in case of such unauthorized transactions is to ensure the following:

  • Complaints to be resolved within 90 days of the receipt of the Compliant;
  • Where Bank is unable to resolve within 90 days, entire amount to be returned to the Customer;
  • In case of debit card/bank account – customer should not suffer loss of interest

BOARD APPROVED CUSTOMER PROTECTION POLICY

The said Circular addresses the need for all Banks to put in place, a Board approved Customer Liability Policy. Such a Customer Protection Policy would ensure the following:

  • Counter risks of unauthorized transactions, third-party breaches;
  • Policy to be transparent – non-discriminatory – specify risks and responsibilities of customers in case of fraud
  • Stipulate mechanism for compensation and prescribes timelines; and

CONCLUSION

Such an initiative has been seen as a great relief for customer considering the rampant cases of cybercrimes involving unauthorized transactions that are taking place in our country today.

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