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The Nigerian Bar Association Annual General Conference: Lagos August, 2009. Automated Teller Machines: Legal Issues and Challenges in Nigeria Presentation By A. B. Mahmoud, SAN, OON, FCIArb (UK) DIKKO & MAHMOUD (SOLICITORS). Introduction.
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The Nigerian Bar Association Annual General Conference: Lagos August, 2009 Automated Teller Machines: Legal Issues and Challenges in Nigeria Presentation By A. B. Mahmoud, SAN, OON, FCIArb (UK) DIKKO & MAHMOUD (SOLICITORS)
Introduction • Late 2008, during routine examination of my personal bank statement, I observed a POS transaction that I was not familiar with. The transaction was said to have taken place at IkotEkepene in AkwaIbom State using my ATM Card. I had not been there in at least a year. My account had been debited by means of EFT by my bank. The amount had been credited to a Merchant Seller based in Lagos through an Interswtiching Agent. As a Customer, I contacted mybank immediately. However, several months after no explanation was given. No refund was made to me.
Introduction ......continued • This was in part the story I told FunkeAdekoya SAN during a light conversation over lunch at the SBL Conference in Abuja back in April. She quickly said why not make a presentation at one of the sessions at our Conference. So we could discuss it. • I could not decline her request! • Many of us who use ATMs are familiar with the scenario. • ATM scams and frauds have become endemic • Customers are have very little remedies
Introduction ....continued • In the scenario above some terms have already featured: We are on the whole familiar with most terms: • ATM (Automated Teller Machine) • ATM card (Automated Teller Machine Card) • POS (Point of Sell) • EFT (Electronic Bank Transfer) • Bank • Interswitching Agent • Merchant Seller (Goods Seller or Service Provider) • Customer (Account Holder/Purchaser of Service or Goods)
Introduction .....continued • It is obvious therefore that there are many participants and processes in any simple ATM transaction: • i. Financial Institutions: Banks • ii. Intermediaries (Interswitching Agents) • iii. Merchants/Service Providers • iv. Customers/Consumers • v. Regulators (CBN, Consumer Protection Agencies)
Introduction .....continued • Some of the processes include: • i. Purchase • ii. Payments • iii. Electronic Funds Transfer • iv. Customer Identification • v. Withdrawals/Deposits
Introduction .....continued • The big question is: DO WE IN NIGERIA HAVE A FRAMEWORK THAT ESTABLISHES THE RESPONSIBILITIES AS WELL THE RIGHTS AND LIABILITES OF ALL THE PARTICIPANTS IN THE PROCESSES OF ATM TRANSACTIONS (Or more broadly e-finance/commerce transactions)?
The Outline The Presentation will attempt to deal with the following issues: • WHAT IS AN ATM? • ADVANTAGES • RISKS • LEGAL AND POLICY FRAMEWORK FOR ATM TRANSACTIONS IN NIGERIA • THE WAY FORWARD • WHAT ROLE OF THE NBA
The ATM..... early history • The ATM is a computerised telecommunication device that provides customers of a bank or financial institution with access to financial transactions sometimes in locations outside the bank and without the need for a bank staff or clerk. • The initial development of this machine, was simply a cash dispenser. The first of such was developed and built by Luther George Simjian and was installed at the City Bank of New York in 1939. • The first modern ATM was however developed by De La Rue and installed in 1967 in Enfield Town in North London at the Barclays Bank.
The ATM....continued The ATM basically performs three processes: • It identifies an account (savings/current)by reading the magnetic strip/chip on an ATM card. • It identifies the customer through his PIN (personal identification number) • It executes the instruction of the customer: dispense cash; print account statement etc. These are accomplished through the use of an ATM Card
The ATM card • The ATM card is the small plastic card given to account holders. It usually contains a magnetic strip that stores account information. The more secure ones will have electronic chips. • There are many types of cards that are issued by banks today. Each with distinct features and functions: • Debit Cards • Cash Cards • Credit Cards
ATM cards......continued • ATM Cards: • Debit Card: issued to account holders by which at the holder can pay for purchases at POS or online and the amounts are directly debited to the holders current or savings account • Cash Card: is usually pre funded. Amounts are loaded and carried by the user. They can be used for purchases at certain outlets such as supermarkets, it can be used for online purchases or cash withdrawals at ATM. • Credit Card: is usually issued to an account holder by which the holder has a line of credit from which he/she can make payments for purchases from merchants or get cash advance. The holder makes period payments plus interest on the revolving balance.
Advantages • Customers have access to cash 24/7 • Reduces long waits on queues in banking halls • Minimises risks associated with large movement of cash • Used for payments at POS terminals and for online purchases • Ease of payment of bills, taxes, utilities etc
Advantages ....continued • The banks of course derive great benefits: saving labour and deploying their labour more efficiently; broadening customer base; deepening customer relationship and improving customer loyalty. • In a broader sense, deploying e-payment systems is necessary for development of e-commerce and the new economy. It will eventually help the country integrate into global economy more effectively
The Risks..... There are many risks associated with ATMs and the use of electronic payment systems: • Customer Security: Physical Security (location of ATM)could pose risks or dangers to customers: (Remedy proper lightening; security cameras etc); • Customer Identity integrity: Compromise of PINs by Customers • Scam emails asking for A/C Nos and PINs • Cloned ATMs, POS & Cards • Bank Integrity: Fraud through bank staff • Reliability of ATM... Transactional integrity: common issue in all e-payment systems) How many times you perform an operation and no output (eg no cash is dispensed). • Denial of services..on account of technological failure or fraud control. • Limited or no scope for stop payment instructions by customers. • Remember ATM card is like CASH
Risks.....continued • These risks usually could result in: • Unauthorised access to Customer accounts • Unauthorised transactions and loss of funds by customers • I am not sure there are published statistics on amounts of money lost through ATM fraud in Nigeria but it must be substantial.
Risks......Continued • EFCC smashes syndicate of ATM card duplicators - Bank staff arrested: Sunday Trust August 16, 2009
Risks.....continued • The obvious conclusion is that if the risks and scams associated with ATM transactions are not addressed and the confidence of the customers maintained, then their popularity will dwindle and the country will suffer a serious set back in modernising its payment systems.
The Legal Framework ......continued • Back to the question posed earlier ..... DO WE IN NIGERIA HAVE A FRAMEWORK THAT ESTABLISHES THE RESPONSIBILITIES AS WELL THE RIGHTS AND LIABILITES OF ALL THE PARTICIPANTS IN THE PROCESSES OF ATM TRANSACTIONS (Or more broadly e-finance/commerce transactions)?
The Legal Framework....... Continued • There are no comprehensive laws dealing e-finance, e-commerce or e-payment systems. • As far back as 2003 The CBN recognised the need for guidelines on electronic banking and issued its: GUIDELINES ON ELECTRONIC BANKING IN NIGERIA (AUGUST 2003) • This followed the Findings and Recommendations of its Technical Committee on E-Banking set up earlier that year.
The Legal Framework.......continued • The Guidelines recognised the need for “Legal guidelines to address issues on banking regulations and consumer rights protection” • But did not recommend comprehensive legislation. • The Guidelines deal with issues of • Technology and security standards-standards on computer networks and internet; standards on protocols, application and system software; standards on delivery channels such as ATM, internet banking, POS, International Cards, ETFs etc
The Legal Framework .....continued • Standards on Security and Privacy • Monetary Policy • Legal Issues: such as obligation of banks to protect secrecy and confidentiality of customers accounts; protection of customer’s data • The guidelines on the Legal issues are really more like advise to Banks: They do not spell out Customer Rights as such or how do SEEK OR OBTAIN remedies: • For this the customers must turn the ordinary laws on consumer protection.
The Legal Framework....Continued • The Consumer Protection Council Act Cap C25 LFN provides the legal regime for consumer protection generally. It also applies to banking services including electronic banking. • The law establishes the Consumer Protection Council and mandates it (in Section 2) to amongst other things: • (a) provide speedy redress to consumers’ complaints through negotiation, mediation and conciliation; • ...... • (c) cause an offending company, firm, trade....to protect, compensate, and provide relief and safeguards to injured consumers...from adverse effects of technologies that are inherently hamful, injurious, violent or highly hazardaous” • ... • (j) encourage the adoption of appropriate measures to ensure that products are safe for either intended or normally safe use; ...
The Legal Framework .....continued • In Section 3 of the Act the Council is given powers to apply to court to prevent circulation of offending product. • The Council could also compel manufacturer to certify that all safety standards are met in their products. • Cause or compel quality test to be conducted on a consumer product • The Council could also receive complaints through State Committee and investigate such complaints and impose any redress appropriate although the complainant also retains his right to civil action for compensation or restitution.
The Legal Framework....continued • It is obvious from the language of the Act that it is a pre ICT Revolution Act. • It is safe to assume that the Council is largely ill-equipped both manpower, knowhow and processes to-deal issues arising from e-commerce, e-banking or e-finance. • However, with all the fake merchandize in the country the hands of the CPC should be full.
The Legal Framework.....continued • A victim of ATM fraud or wrong can also seek redress in court under the ordinary common law principles: • Breach of Contract • Negligence • Or Breach of duty to “exercise reasonable care and skill” • The question of course is if you decide to take legal action who is liable? • It is important to remember that the e-banking does not alter the primary nature of the traditional banker/customer relationship. It is just that additional elements of risks are introduced through the interplay of process and additional parties that do not exist in the traditional relation.
The Legal Framework.....continued • This takes us back to our scenario at the introduction: • How do you seek redress? Who is liable? • Your Bank ? • The Intermediary? • The Merchant/Service Provider? The answer of course will depend on the facts: • What kind of card do you hold? Cash Card, Debit Card, Credit Card? • What was the transaction involved: a cash withdrawal from your bank ATM or through another bank ATM? • Did the transaction involve a merchant/service provider? • Was it a transaction denial? • Where you as the customer negligent? Did you compromise your PIN for instance? • Have you made a report promptly to your bank as soon as you discovered the problem: Obviously, a comprehensive statute dealing the rights and liabilities of ALL parties will be of great assistance
The way forward • The Country needs to fully deploy and establish modern electronic payment systems and e-commerce. • We must have a policy guide on these issues of the emerging new economy that should be regularly updated. • It must create the comprehensive legal and institutional framework for this. • This should address all aspects of: • e-finance, • e-banking, • Digital signature • Electronic evidence • Data protection • Rights and Duties of Customers; liabilities and responsibilities of banks; and all service providers etc. Note: electronic commerce, and its platform: the internet encourage innovation and quick access to new products and services: Therefore laws and regulations must continue to encourage and not that creative spirit
The Way Forward....continued • As the main focus of this discussion is Individual Consumer Rights of ATM users we may take a cue from the US for instance: • The Electronic Fund Transfer Act 15 USC makes fairly comprehensive provisions in this regard. The Act sets outs its objectives as follows: “ (a) The Congress finds that the use of electronic systems to transfer funds provides the potential for substantial benefits to consumers. However, due to the unique characteristics of such systems, the application of existing consumer protection legislation is unclear, leaving the rights and liabilities of consumers, financial institutions, and intermediaries in electronic fund transfers undefined. (b) It is the purpose of this title to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. The primary objective of this title, however is the provision of individual consumer rights”
The way forward ....continued • The US Act makes comprehensive provisions on the rights of consumers or card holders and clearly defines the duties and responsibilities for each party. • For instance Section 909 makes a provision on Consumer liability for unauthorised transfers: “(a) A consumer shall be liable for any unauthorised electronic fund transfer involving the account of such consumer only if the card or other means of access utilized for such transfer was an accepted card or other means of access and if the issuer of such card, code, other means of access can be identified as the person authorised to use it, such as by signature, photograph, or fingerprint or by electronic or mechanical confirmation. In no event, however, shall a consumer’s liability for an unauthorized transfer exceed the lesser of... (1) $ 50; or
The way forward....continued (2) The amount of money or value of property or services obtained in such unauthorised electronic fund transfer prior to the time the financial institution is notified of, or otherwise becomes aware of, circumstances which lead to the reasonable belief that an unauthorised electronic fund transfer involving the electronic fund transfer involving the consumers account has been or may be effected. ....”
The way forward.....continued • The EFT Act USC 15 is complemented by the Electronic Funds Transfer Regulation E issued the Federal Deposit Insurance Corporation FDIC • In addition several states also have their laws and regulations on ATMs see for instance: 205 ILCS 695/) Automated Teller Machine Security Act. (for the state of Illinois
What Role for the NBA • Clearly, the state of the law is inadequate and in need of urgent reform • The NBA Can lead the way for reforms by providing its expertise and teaming with other stakeholders in this process • NBA could consider a setting a task force on Electronic Commerce that will study and review on a continuous basis the various legal and policy various around e-commerce. • It is clear that these matters are crucial for the development of Nigerian Economy and of course the welfare of our citizens.
Finally I THANK YOU FOR YOUR ATTENTION
