RBI may assume financial liability for Card frauds

RBI has clarified that any unreturned notes of denominations of Rs 500 and Rs 1000 will remain as unclaimed/claimable liability on their balance sheets but will not be transferred to Government in the form of dividend. It will therefore remain as a “Special Fund” arising out of demonetization.

I would like to draw the attention of the RBI as well as the Government and the Courts in India, besides the public that on August 11, 2016, RBI issued a circular stating that under certain circumstances the victims of card frauds would have zero liability.  Banks were mandated to send SMS alerts and victims were required to inform the Bank about any unauthorized transaction after which there would be no liability for the card holder.

This circular was marked as “Draft for public comments” and August 31 was the last date for such comments. Until now there is no further information on the circular.

On 1st December 2016, the undersigned has sent a letter to the Governor of RBI (Copy available here) under copy to PM and FM. The letters have been received at the destination on 3/12/2016 in Delhi and 5/12/2016 at Mumbai by the respective addressees as per speed post delivery information.

As mentioned in the said letter, in view of the silence of RBI, it is deemed that the circular of August 11th 2016 on limited liability is now operational.

As per the circular, Banks have to publish their policies on how they will handle delayed reporting of fraudulent transactions. Banks are also responsible to institute that SMS alerts are sent mandatorily to all card customers on the transactions irrespective of the amount. Also since most of the times the dispute with the Bank is on the sending or not sending of the alert SMS, Bank need to assume the responsibility for providing necessary evidence as and when required.

As regards the customer reporting the fraudulent transaction, Naavi will provide assistance to the victims to record their notice so that Banks cannot repudiate such notices having been received by them through the services of ceac.in and cyber-notice.in.

These services will be provided free of charge until 31st January 2016 or until further notice whichever is later.

If a proper service has been sent to the respective Bank and it continues to dispute the return of money to the victim customer, the victim may consider taking legal action not only for recovery of the dues but also for harassment etc.

We hope that victims will make use of such services so that the expected spurt in the cyber frauds following the recent demonetization and special thrust for digital payments does not result in personal losses for the newly converted digital India enthusiasts.

In the meantime, since Banks will raise a dispute of their own that RBI is responsible for the draft circular contents, (since it has not been clarified that the circular is now operational) RBI may have to assume the liability on behalf of the banks. We therefore suggest that RBI may create a “Cyber Fraud Insurance Guarantee Fund” on the lines of  DICGC and utilize the special reserve created out of the un returned notes as a seed fund. Further Banks may be required to pay upto say 2% of their card liabilities on a monthly basis as fees and build up the necessary fund base for this guarantee fund.

I draw the attention of the FM and PM to facilitate such a move.

I request my friends in Mumbai and Delhi to file appropriate RTI applications to know what follow up action has been taken by RBI/FM/PM on this issue.



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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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