Failed Electronic Fund Transfer in Nigeria: Liability of Banks

Failed Electronic Fund Transfer

Liability For Failed Electronic Fund Transfer in Nigeria

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Takim Etta

Introduction

When an electronic bank transfer fails, the affected party experiences not only a significant level of disappointment but often frustration as well. This stems from the immediate consequences, such as unmet needs, and the inability to procure intended goods or services due to the unavailability of additional funds at that precise moment. This recurrent scenario not only diminishes faith in the banking system but also prompts concern for the overall efficacy of electronic transactions.

In response to these challenges, the Central Bank of Nigeria, acting as the regulatory authority overseeing all banks and financial institutions, has steadfastly provided regulatory guidelines. These guidelines aim to facilitate a seamless banking experience, fostering trust and confidence in the banking sector.

This article delves into the critical examination of the liabilities of banks and other financial institutions in Nigeria when faced with failed bank transactions. It also sheds light on the corresponding responsibilities of the bank customers who undergo such transactional failures. By exploring these facets, we aim to contribute to the discourse surrounding the intricacies of electronic banking, accountability, and the measures in place to fortify the faith of the public in the banking industry.

Liability For Afiled Bank Transaction 

A bank transfer represents a documented record of funds flowing into or out of your account. When your business incurs expenses, these transactions reflect the financial activity related to your business operations.

According to Sterling, a failed transaction occurs when your account is charged for a transaction, but you do not receive the expected value. This situation arises in instances such as: When an ATM fails to dispense cash, yet your account is debited for the corresponding amount, and When a POS/Web transaction is declined, but your account is still debited for the specified value.

In both scenarios mentioned above, it becomes evident that the root cause of the transfer failure lies in a server issue or a technical error. These issues lack clear explanations for the bank customer, who, being a user, may find themselves uncertain about how to address and resolve the problem.

It is precisely to address such frustrations that, in 2018, the Central Bank of Nigeria introduced the  Regulations.  on Instant (Inter-Bank) Electronic Funds Transfer. These regulations are designed to scrutinize the accountability of financial institutions and outline the responsibilities of bank customers in cases where electronic transfers encounter failures.

By issuing this regulation The Central Bank of Nigeria (CBN) Exercises its authority granted by Sections 2(d), 33 (1)b), and 47(2) of the CBN Act 2007, with the aim of fostering a robust financial system, issuing guidelines, and advancing the development of an efficient payments system in Nigeria.

The Banks owe their customer a duty of care to ensure that all failed Electronic Fund Transfer transactions are resolved timely and accurately failure of which may give grounds for liability.  U.B.N. Plc v. Chimaeze (2014) LPELR-22699(SC) The court held that the appellant has an obligation to uphold a high standard of care in managing the respondent’s money. The breach occurred when the appellant dishonored the respondent’s cheque despite having sufficient funds in the account to cover the amount. This breach is viewed as a violation of the fiduciary relationship, and the respondent is deemed entitled to compensation in the form of damages for this action.

Every electronic bank transfer is carried on by three parties, namely, the customer, the receiving entity, the the sending Entity. liability of the bank for a failed electronic transfer is dependent on the breach of the regulatory guideline provided by the CBN.

Duty of The Sending Entity

A Sending Entity is the financial institution where the transfer command was initiated. The Sending Entity has the following duties.

1. Swift Application of Proceeds: Apply Instant Electronic Fund Transfer proceeds to the customer’s account within 60 seconds.

2. Confirmation of Transaction: Ensure that Instant failed  Electronic Fund Transfer proceeds are credited to the customer’s account before confirming to the Sending Entity that the transaction was successful.

3. Notification of Delays: In cases where crediting the customer’s account within 60 seconds is impracticable due to security, system, or other considerations, notify the Sending Entity, beneficiary, and/or Electronic Fund Transfer service provider(s) of the issue. Assure them that pending credits will be applied as soon as the issue is resolved, not exceeding 24 hours.

4. Customer Notification: Notify the customer of the Instant EFT receipt as agreed in the terms and conditions of its platform.

5. Bank Statement Details: Ensure that the bank statement of the beneficiary includes, at a minimum, the Sender’s name and Transaction Narration Information as contained in the inward EFT message to facilitate reconciliation by the beneficiary.

6. Transaction Status Notification: Provide in the transaction status notification the service support contacts that a customer can report to in case of misapplication of credit to a wrong account.

7. Erroneous Credit Reversal: Upon receiving a notification from a customer regarding an erroneous credit and necessary reversal authorization, promptly reverse the erroneous credit.

8. Processing Inward Instant Debit Transactions: Process all inward instant debit transactions, subject to valid debit mandates.

9. Publicization of Services: Publicize Instant Electronic Fund Transfer services and the Instant Electronic Fund Transfer Frequently Asked Questions to its customers.

10. Compliance with Regulations: Comply with the approved Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) directive, as well as transaction value limits set by the CBN and other relevant regulatory bodies.

failure of the Sending entity to abide by the guidelines provided above may warrant grounds for liability.

Duties of The Receiving Entity:

 

The Receiving Entity is the Financial Institution responsible for receiving the Electronic Fund transfer and the CBN regulation has imposed the following duties on this institution:

1. Offer Name Enquiry support to the Electronic Fund Transfer Service Provider, minimizing the occurrence of incorrect credits. This support is subject to a Non-Disclosure Agreement, exclusively for Instant Electronic Fund Transfer service provision.

2. Swiftly apply Instant Electronic Fund Transfer proceeds to the customer’s account within 60 seconds.

3. Confirm that Instant EFT proceeds have been successfully credited to the customer’s account before notifying the Sending Entity of a successful transaction.

4. In cases where crediting the customer’s account within 60 seconds is not feasible due to security, system, or other considerations, promptly inform the Sending Entity, beneficiary, and/or EFT service provider(s). Provide assurance that pending credits will be applied as soon as the issue is resolved, with a maximum timeframe of 24 hours.

5. Notify the customer of the Instant Electronic Fund Transfer receipt in accordance with the terms and conditions outlined on its platform.

6. Ensure that the bank statement of the beneficiary includes, at the minimum, the Sender’s name and Transaction Narration Information as stated in the inward Electronic Fund Transfer message, facilitating reconciliation by the beneficiary.

7. Include service support contacts in the transaction status notification, enabling customers to report instances of misapplied credit to a wrong account.

8. Upon receiving notification from a customer regarding an erroneous credit and the necessary reversal authorization, promptly reverse the erroneous credit.

9. Process all inward instant debit transactions, contingent upon valid debit mandates.

10. Promote Instant Electronic Fund Transfer services and the Instant Electronic Fund Transfer FAQ to its customer base.

11. Adhere to the approved Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) directive, along with transaction value limits as periodically set by the CBN and other pertinent regulatory bodies.

Duty of the Bank Customer:

A bank customer in this context is an individual initiating a transaction, where the desired outcome is the debiting of their account and the corresponding crediting of the intended amount in the bank of the receiving entity.

In the event of a failed Electronic Fund Transfer, it is the responsibility of the customer to promptly engage both the sending and receiving entities. The customer should provide comprehensive information, including bank details and transaction specifics, to both entities. Following the submission of these details and a timely complaint, if the money is not reversed within 24 hours, the bank accountable for the unsuccessful transaction will be held liable for refund and potential damages.

This legal duty is evident in MR. MOSES G. JWAN v. ECOBANK NIGERIA PLC & ANOR (2020) LPELR-55243(CA) In that case Mr. Moses G. Jwan, the Appellant, faced an issue when attempting to withdraw N10,000 from United Bank of Africa’s (UBA) ATM using his Ecobank-issued ATM card. Despite the transaction being labeled successful, no money was dispensed, and his Ecobank account was debited. Complaints to both banks yielded no resolution, with Ecobank insisting the payment was successful.

Unsatisfied, Mr. Jwan took legal action against both banks, seeking reimbursement of the debited amount, special damages of One Hundred Thousand and Twenty Naira for expenses incurred during the case, and general damages of Five Hundred Thousand Naira for negligence. He invoked res ipsa loquitur in his plea, asserting the unexplainable debit by UBA’s ATM. His visits to both banks in pursuit of a resolution incurred additional expenses, forming the basis for his special and general damages claims at the High Court of Justice of Plateau State. On appeal the court held that the bank owed a duty of care for failed bank transactions and awarded damages for breach of that duty.

Conclusion:

While acknowledging the inherent imperfections in any system, it is crucial for banks and financial institutions to prioritize their overarching responsibility to promptly address failed Electronic Fund Transfers. Such incidents often inflict hardship on Nigerians. The manner in which banks handle customer complaints plays a pivotal role in determining the extent of their liability. Therefore, an enhancement in the attitude and efficiency of banks when addressing customer concerns is imperative to mitigate the adverse impact on individuals.

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