(P.S: This article has reference to India) 

We draw the attention of Reserve Bank of India to the  implications of an e-mail recently sent out by Tata-AIG Insurance to promote an insurance scheme supposedly against Credit Card Frauds.

A Copy of the e-mail is available here.

The proposition is that if a Credit Card customer loses his credit card and the card is used to make some purchases before the card holder reports the loss of credit card, then any purchase (other than cash advance)  made 12 hours prior to such reporting would be reimbursed under the insurance scheme.

For some time now, some Credit Card companies are also calling up their customers and asking them to take such an insurance to the debit of their card account.

It is our contention that the proposal of the Insurance Company and the Credit Card companies is an unfair attempt to shift the legal liability of the Card issuing Bank onto the customer.

It is an established legal fact that in any Banker-Customer dispute, if the cheque or mandate is forged, then the customer has no liability on the Bank making any payment on the strength of the forged instrument. This applies even if the forgery is very good or even if there is negligence of some sort by the customer such as misplacing his cheque book etc. The only exception is when the customer is himself involved in a fraud or was aware of the fraudulent encashment and by his action made the bank believe that the payment was correct, in which case he would be estopped from claiming that he is not responsible for the debit.

This is stated in many Court judgements the principle judgement being a Supreme Court decision in Canara Bank Vs Canara Sales Corporation AIR 1987 SC 1603.

In this case the Supreme Court made the following observations:

“When a cheque duly signed by a customer which is presented for encashment before a bank, it carries a mandate to the bank to pay. However, if the signature on the cheque is not genuine, there is no mandate on the bank to pay. The bank when it makes the payment on such a cheque cannot resist the claim of the customer with the defence of negligence on his part such as leaving the cheque book carelessly so that third parties would easily get hold of it. This is because a document in cheque form, on which the customers name as drawer is forged, is a nullity. The bank can succeed only when it establishes adoption of estoppel.”

     It was further observed by the Hon’ble Supreme Court  as under:

“…In order to sustain a plea of acquiescence, it is necessary to prove that the party against whom the said plea is raised, had remained silent about the matter regarding which the plea of acquiescence is raised, even after knowing the truth of the matter…”

     The Supreme Court also observed ias under:

“…Nor can inaction for a reasonably long time in not discovering fraud or irregularity be made a defence to defeat a customer in an action for loss…”

The case of the encashment of the Credit Card is no different from the above case and hence the customer has no liability.

Despite the knowledge that the customer is legally not liable and the Bank alone is liable, attempts made by the Credit Card issuing Banks and Tata AIG can only be called anti-consumer frauds.

We hereby request Reserve Bank of India to advise all Credit Card issuing Banks that they cannot hold the customer responsible for any payments made on a card where the customer has not himself authorized the payment.

In the event of a stolen card, the charge slip would obviously have been forged. Even in case of an online purchase, the entry of particulars by an unauthorized persons in a website including the CVV number, is an “Unauthorized Access” and “Forgery”. Banks should therefore take full liability for the same.

Yet another point on which Reserve Bank has to suitably advise Credit Card issuing Banks is on the issue of “Charge Backs”. The relationship between the Credit Card owner and the Issuing bank is that of a Banker and Customer and “Charge Back” is like “Stopping payment of a cheque”.  In recent days some Credit Card companies are including clauses in the Card issuing contract either to say Charge backs will not be allowed or to say that it would be accepted only if it is reported withing a certain time of transaction etc. or when the purchase has been cancelled and acknowledged by the merchant etc. In such cases, the card issuing Bank will be trying to protect the interests of the Merchant with whom they donot have any privity of contract. 

It is considered  untenable for the Banks to refuse “Charge Backs” by their customers and suitable instructions have to be given to Banks in this regard.

Also, the Banking Ombudsman at various places have to be suitably informed about these requirements.

Additionally, whenever a stolen credit card is used for making a purchase, the activity amounts to “Unauthorised access to a computer system” and hence becomes an offence under ITA 2000.

Hence this comes under the jurisdiction of the Adjudicating officers to consider payment of compensation to the banks. The adjudicating officers should also be suitably informed so that Netizens using web based services or who are defrauded by Cyber criminals get a fair justice.

Naavi of naavi.org

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