There has been a sudden surge in number of people using online banking services. The underlying factors include government thrust on digital payments especially post demonetization, cheaper internet facility and smart phone becoming ubiquitous in India. However, with rise in online payments, there has been similar increase in online fraudulent transactions too.
According to RBI annual report for the year 2018-19, the number of cases of frauds reported by banks increased by roughly 15% vis-à-vis last year. And as per crime data, identity theft accounts for 77% of the fraud cases registered in India. Another analysis suggests that, “one in every three Indian will be affected by identity theft at some point in their lives”.
Thus, virtual world crimes including cyber frauds are rising at an alarming rate. Victims in cyber fraud cases are concerned not only with conviction of cyber criminals but also with refund of money. Hence, this blog, focuses on legal aspect of refund of money as well as procedure for the same.
The bank’s (All scheduled commercial banks, Small finance bank and Payment Banks) liability in case of Unauthorized Electronic Banking Transactions is governed by RBI circular - RBI/2017-18/15, DBR.No.Leg.BC.78/09.07.005/2017-18 dated July 06, 2017.
Salient Points of Circular:
Broadly, the electronic banking transactions are divided into two categories:
Reporting of Unauthorized Transactions by Customers to Banks:
Limited Liablity of a Customer:
1. Zero Liability of a Customer
2. Limited Liability of a Customer:
A customer shall be liable for the loss occurring due to unauthorized transactions in the following cases:
Image Source: BusinessToday Magazine
Reversal Timeline for Zero Liability/ Limited Liability of customer:
On being notified by the customer, the bank shall credit (shadow reversal) the amount involved in the Unauthorized electronic transaction to the customer’s account within 10 working days from the date of such notification by the customer (without waiting for settlement of insurance claim, if any). Banks may also at their discretion decide to waive off any customer liability in case of unauthorized electronic banking transactions even in cases of customer negligence. The credit shall be value dated to be as of the date of the unauthorized transaction.
Further, banks shall ensure that:
Importance of OTP:
RBI guideline says - In cases where the loss is due to negligence by a customer, such as where he has shared the payment credentials, the customer will bear the entire loss until he reports the unauthorized transaction to the bank. Any loss occurring after the reporting of the unauthorized transaction shall be borne by the bank.
As such, OTP is of paramount importance in this entire money refund process. Customers enjoy zero liability and are eligible for full money refund, only if the victim had not shared OTP or any other sensitive details like UPI PIN with the fraudster.
What has Changed Primarily with this Notification?
While in earlier approach, the onus was on the de-frauded customer to prove that he/ she has not shared crucial details like OTP with the fraudster. Now, the same has been shifted to banks – now banks have to prove that the customer was at fault and not careful enough while using it’s online services.
The earlier system led to harassment of victims - either banks didn’t refund the money or took too long to reverse it. The problem was compounded by lack of clear guidelines or stipulated period for refunds. As frauds rose, people were becoming apprehensive about online transaction, which would have been regressive step for all the stakeholders in virtual world transactions. Hence, the newer guidelines.
The earlier system also provided no incentives for banks to invest in fraud monitoring systems, as liability was on customers. Now, since the onus has shifted to banks, they are likely to implement a robust and dynamic fraud detection and prevention mechanism. Simultaneously, they will access and fill in the gaps found in the system.
The systems of Hitachi Payment Services, to which few banks had outsourced their ATM transaction processing, were compromised. In this scenario, if a customer becomes victim due to breached details of Hitachi services, banks will have to refund the entire money lost. The only pre-requisite is customer informing the bank about the fraudulent transaction within three working days after receiving the communication of un-authorized financial transaction.
Consider another scenario where the database of banks is accessed unlawfully by hackers or card details of customers are leaked to world, due to ignorance or negligence of bank authorities. Again, any loss to customer due to fault on the banks, will be borne completely the banks.
Procedure Victim should Follow:
There is no strict procedure to be followed, except for rigid timelines as enumerated before. However, for maximum efficiency, following procedure is recommended:
Step 1: The complainant/ victim should lodge a complaint with the nearest Police Station or Cyber Cell. Following documents should be submitted along with the complaint –
The chats, fraudulent mails, voice recordings, phone messages etc. should be retained in the “Original Device” as such. This is important to enable adduce them as evidence in the Court of Law. Once, the contents from original device are deleted, they lose their sanctity (even though present in other devices, as forwarded materials). Hence, care must be taken not to delete the original incriminating evidences.
Ideally, an FIR should be lodged (U/S 154 Cr.P.C), but if police resists get a DDR (Daily Diary Register) entry made and receive a stamped copy of the proof of submission of the complaint. Now-a-days several state police allows lodging similar complaint via mobile application or web based interfaces too. The whole idea is to lend weight and credibility to the complaint you shall finally make to your bank, with the use of such FIR/ DDR entry.
After informing the bank, you should also block your card through mobile application, online banking or via toll free number written on the back side of your ATM card. Don't search numbers via Google search, otherwise you may end having fraudster's number, leading to further victimization.
Step 2: Submit a similar complaint to the nearest bank branch and the RBI branch. The complaint to RBI branch is primarily meant to pressurize the bank to deal with the case swiftly and strictly as per the procedure prescribed by RBI.
RBI Bank branches: The RBI branches pan India can be seen using this link -https://www.rbi.org.in/Scripts/Regionaloffices.aspx
Care must be taken to ensure you notify the bank within three working days of receiving the communication from the bank regarding the unauthorized transaction, to enjoy zero customer liability.
Step 3: Stay in contact with bank officials, seeking refund as per RBI guidelines. In case of delay, seek reasons for the same.
How to Prevent being Victims of Online Frauds?
Here are some of the precautions to keep in mind, to prevent being victim of online fraudulent transaction.
Learn how and where to report cyber crimes in India officially, here: https://cyber-cops.com/blog/how-and-where-to-report-cyber-crimes-in-india-officially