Unauthorized banking transactions: 10 things to know

RBI has issued a draft Circular to review the criteria for determining customer’s liability, considering the recent surge in unauthorized transactions in banks resulting in erroneous debits to accounts of customers.

The highlights of the draft circular are given here:

1. In case of third party breach (i.e., where the fault lies neither with the bank nor the customer but lies elsewhere in the system)the liability for customer is summarized as follows:
2. A) Fraudulent transaction is reported Within 3 working days – Customer’s liability is zero
   B) Fraudulent transaction is reported Within 4-7 working days of receiving the communication – Customer’s liability is the transaction value or Rs 5,000 , whichever is lower.
3. Where negligence is on the part of the customer, e.g., as where he has shared the payment credentials, he will bear the entire loss until he reports the unauthorized transaction to the bank.
4. Any loss that occurred after reporting of unauthorized transactions shall be borne by the bank.
5. In case of zero liability or the limited liability of the customer, the bank shall credit the amount involved in the unauthorized electronic transaction to the customer’s account within 10 days from the date of notification by such customer.
6. The burden of proving the customer’s liability in case of unauthorized electronic banking transactions shall lie on the bank.
7. The loss or fraud reporting system shall also ensure that immediate response (including auto response) is sent to the customers acknowledging the complaint along with the registered complaint number.
8. The communication system used by banks to send alerts and receive responses thereto must record the time and date of delivery of the message and receipt of the customer’s response, if any, to them.

RBI Updates:-

RBI issued a Master Directions on Core Investment Companies (Reserve Bank) Directions, 2016 vide Master Direction DNBR. PD. 003/03.10.119/2016-17 dated 25/08/2016.

Banks shall ask their customers to mandatorily register for alerts for electronic banking transactions. The alerts shall be sent to the customers through different channels(email or SMS) offered by banks.

Banks must provide customers 24×7 access through multiple channels for reporting of fraudulent transactions.

Banks at their discretion may also waive off any customer’s liability in case of unauthorized electronic banking transactions even in cases of customer’s negligence

RBI has proposed zero liability for customers where fraud or negligence is on the part of bank.

RBI issued a master direction on Exemption from the provision of RBI Act, 1934 vide Master Direction No. DNBR.PD. 001/03.10.119/2016-17 dated 25/08/2016.