Problems with E-Banking

The relevant statutes and cases 5 How the current legislations adequately 6 protect the consumers References 7 QUESTION: Analyse with relevant statutes and cases the problems with electronic banking and how the current legislations adequately protect the consumers overcoming these problems. ANSWER: The following are the problems with e-banking: 1. Time of payment:The opportunity for a customer to countermand or stop electronic payment is unclear. If the transfer is effective before the countermand is received, then the paying institution will have paid in accord with its mandate and is not liable to reverse or restore payment to the customer. Cheques are only paid or effective once cleared, and the paying bank holds records of the appropriate debit, however with EFT there are 5 possible times of payment: a. The time of transmission. b. The entering of the transfer instruction into the transfer system. c. The time of receipt of the transfer instruction by the paying institution. . The time when the recipient financial institution decides to accept the payment. e. The time when the recipient financial institution credits the sum to the account of its customer. 2. Malfunctions: ADIs accept liability for direct loss if there is a malfunction in the system. In the case where an electronic malfunction resulted in non-payment of an amount of money due under a charter party agreement, such that one of the parties lost the benefit of a ship charter, resulting in the loss of millions of dollars, it may result to indirect or consequential loss.The Uniform Commercial Code, in the USA, prohibits recovery of consequential damages from a recipient bank for a delayed or otherwise mishandled funds transfer unless there is express written agreement permitting recovery between the bank and its customer. 3. Evidence of transactions: EFT transactions are usually evidenced at the point of transaction by a document proffered to the customer. The problem arises with the unauthorized o r fraudulent use of the facility, this will result to the customer not discovering the unauthorized use until there is a periodic statement issued. . Security, fraud and liability: In accordance with cheques and bills, a customer is not ordinarily liable for losing a bill, cheque or cheque book or failing to check bank statements for inaccuracies; the duties owed by the customer to a bank are quite limited in scope. However in the case of debit and credit cards, the duties are quite different. The customer is under greater contractual duties regarding security and liability for fraud. He must keep the card in a safe place and is required to notify the bank immediately of its loss or theft. 5. Terms of contract:The terms of e-banking account are set by the ADI and are varied upon notice from time to time. Customers have little bargaining power and also problems with understanding the contractual obligations. To further illustrate this point, there is usually a â€Å"Conditions of Us e† document supplied with a debit or credit card but rarely is it understood, and as soon as the customer signs the card or first uses it, they are deemed to have accepted the card on these conditions. The relevant statutes and cases illustrating the problems with electronic banking: 1.ANZ vs Westpac (1988) 164 CLR 662, A meat company (Jakes) had an account with the branch of the Westpac Bank. At the relevant time the account was overdrawn in the amount of $67,000. A customer presented to ANZ a cheque in favour of Jakes for $14,000, but, by reason of clerial error, ANZ credited Jakes account with Westpac for $114,000. By the time ANZ notified Westpac for the error, Westpac had applied the money in reducing the overdraft and in honouring a number of Jakes’s cheques. Jakes paid back only $2,500 of the $100,000 before going into liquidation.ANZ brought an action against Westpac to recover the overpayment, however Westpac sought to rely on the defence of ministerial receipt . Bth parties acted on the basis of concessions made by Westpac that the reduction of the overdraft anad the payment of certain cheques which could have been dishonoured by Westpac at the time was notified of the mistake should be ignored for the purposes of determining whether the moneys had been applied. As a result of the concessions it was accepted by Westpac that it had not applied $17,021 of the payment and that it was liable to return this amount. . Mercedes Benz v ANZ and National Mutual Royal Savings Bank Ltd (Part 2), Mrs R was employed by the plaintiff as a payroll supervisor. By arrangement with the second defendant, she was given forms for opening accounts for new employees of the plaintiff, and she received cards and PINs for accessing those accounts. The plaintiff paid wages and commissions by issuing a cheque in favour of NMRB who then credited the appropriate accounts. There was virtually no supervision of Mrs R after her appointment, nor did the second defendant ev er question the creation of accounts.Mrs R defrauded the plaintiff company using several different schemes. For the purposes of the present note, the relevant scheme was to create accounts in fictitious names and then use those accounts for the deposit of cheques. How the current legislations adequately protect the consumers: To address these problems, a joint State and Federal Committee of Consumer Affairs Ministers prepared a Code of Conduct to be allowed by financial institutions. They were given some time to incorporate the Code into their standard EFT contracts or alternatively face legislation.After amendments recommended by the Trade Practices Commission in 1989, the Code was implemented along with the Australian Banking Ombudsman Scheme. The current Code is now part of ASIC’s scope of administration.REFERENCES: 1. Restitution law: By Sharon Erbacher pg. 639 2. Law 330 module 2 pg. 30-32 3. Cases and materials on the law of restitution:  By Andrew Burrows, Ewan McKen drick, James Edelman pg. 838 4. http://austlii. edu. au/~alan/mb2. html, Mercedes Benz v ANZ and National Mutual Royal Savings Bank Ltd (Part 2), accessed on 20/08/10.