Banks asked to pay customers for card transaction fraud

Written by ENS Economic Bureau | Mumbai | Updated: Sep 28 2013, 14:00pm hrs
Card transactionRBI has said that banks not complying with security requirements should compensate the loss incurred by the card holder. (Reuters)
Banks will have to bear the cost of fraudulent card transaction through point of sales (PoS) at merchant establishments that do not have security features prescribed by the Reserve Bank of India (RBI).

In a move to curtail rising credit card frauds, the RBI said banks not complying with security requirements should compensate the loss incurred by the card holder.

If it is found that the PoS terminals are non-compliant as mandated, the issuing bank should pay the disputed amount to the customer within seven working days, failing which a compensation of Rs 100 per day will be payable to the customer from the 8th working day, the RBI said in a notification issued to all banks.

Various law enforcement agencies have found cards being cloned and money withdrawn in foreign countries. There have been instances of illegal card-skimming leading to theft from other bank accounts due to problems in the authentication processes in the jurisdiction where the money was withdrawn.

The RBI had, earlier this week, asked banks to stop zero per cent EMI schemes on consumer goods purchases. It also asked banks to prevent merchants from levying fee on debit card transactions.

Refusing to relax its earlier circular on upgrading the security features at PoS, the RBI notification said it will also consider invoking the penal provisions under the Payment and Settlement Systems Act, 2007 for banks that have failed to adhere to the timeline of September 30, 2013. When a fraud is committed, the issuing bank would ascertain within three working days whether the PoS terminal is compliant with Unique Key Per Terminal or Derived Unique Key Per Transaction or Terminal Line Encryption as mandated, the RBI.

Various banks have approached us, seeking further extension of the September 30 time line for complying with the task of securing the technology infrastructure as stated in the circular dated September 22, 2011, the RBI said.

The RBI said the timelines indicated were decided after a series of discussions with stakeholders and no further extensions would be granted.

The RBI had earlier this year asked banks to bar international usage of cards unless specifically ask by customers.


*Banks should terminate relationship with merchant establishments which levy a fee as a percentage of the transaction value as charges on debit cards of customers saying such fees are not permissible and justifiable.

*Discourages 0% EMI schemes offered on credit card outstandings as the interest element is often camouflaged and passed on to customer in the form of processing fee. Some banks were loading the expenses incurred in sourcing the loan (DSA commission) in the rate of interest.

*On subventions and discounts on price or moratorium period for payment offered by the dealers/ manufacturers, banks should get the better bargain to make the customers fully aware of these benefits and also pass on the benefits to them while sanctioning loan for the purchases.

*If there is a discount offered in the price of a product, the loan amount sanctioned for the purchase should be after taking into account the discount rather than giving effect to the benefit by reducing the rate of interest