INPA Unit 3 T3 - EFTs

EFT

Transfer is executed by way of a series of mandates which eventually results in crediting the beneficiary’s account and debiting the account of the originator - balances on the bank accounts of the payer and payee

Credit Transfers

• Debtor pushes funds from his acc to acc of beneficiary

• Originator = debited

• Beneficiary = credited = obtains personal right against his bank to credit his account

• Duty of bank = exercise reasonable care and skill in carrying out mandate

• Originator and Beneficary can be the same person

Debit transfers

• The Creditor instructs her bank to collect a recurring payment for a debt

• The creditor “pulls” the funds to her account

• Right of the debtor’s bank to debit the debtors acc is based on his expenses, tacit or subsequent agreement

Consumer Activated EFT systems

1. Automated teller machines

2. Electronic Funds Transfer at Point of Sale

3. Internet banking, mobile/cellphone banking and telephone banking

4. Electronic Money (E-money)

Automated teller machines (ATMs)

An ATM card allows customers to withdraw cash, check balances, transfer money, make deposits and view mini-statements. A contract exists between the customer and the bank, allowing the bank to deduct ATM transactions from the customer’s account. The customer is responsible for unauthorised withdrawals until the bank is informed that the card or PIN was lost or stolen, and the bank does not have to warn the customer about these risks.

Electronic Funds Transfer at Point of Sale

• Debit or credit cards founded on a mandate as customer instructs the bank electronically to effect payment

• Payment effected by swiping customer’s card

  and keying in a pin, once done it would not be

  possible to countermand payment and the

  payment constitutes an absolute form of

  payment

EFTPOS (Online)

• EFTPOS terminal communicates with the cardholder’s bank immediately.

• The transaction is authorised and the money is transferred electronically from the cardholder’s account to the supplier’s account.

EFTPOS (offline)

• EFTPOS terminal cannot communicate with the bank at the time of the transaction.

• The supplier therefore cannot immediately verify whether the cardholder has sufficient funds or whether the transaction will be honoured.

• The transaction is processed/verified later when communication with the banking system is restored.

Does EFTPOS constitute novation of cardholders obligation

• NO

• Supplier can claim from cardholder

Internet Banking/mobile banking and telephone banking

Access & Convenience = clients can access anywhere but creates risk for them

Verification of payment instructions = if acc no and beneficiary’s name doesnt correspond, acc no prevails

Banks exclusion of Liability

Standard-form banking agreements often exclude liability for:

• Malfunction of the client’s computer or telephone network.

• Defects beyond the bank’s control.

• Loss caused by the system being unavailable.

• Loss caused by unauthorised access to the system.

• Errors made by the client, although the bank may assist in correcting the error

Barkhuizen v Napier

• Pacta sunt servanda;

• Is subject to constitutional control, inequality in the parties bargaining positions is an important consideration

• Therefore, some exclusion clauses may be contestable

Electronic Money (E-Money)

• Monetary value represented by a claim on the issuer, stored electronically and issued when funds are received.

• Generally accepted as payment by persons other than the issuer and redeemable for cash or bank deposit on demand.

• Examples: E-money cards, digital cash, mobile money

• Electronic Purse

Electronic Purse

• Smart card loaded by a bank/issuer with an agreed amount

• Cardholder uses it until the balance is exhausted; it can then be reloaded

• Eg. Gautrain Gold Card

Issuing & Regulation (E-money)

• Only SA banks can issue e-money = reduce risks in national payment system

• E-money = separately identifiable e-money acc for each holder

• Issuer comply with Banks Act, SARB Act, NPS Act and FICA

• Public must be informed of conditions of use, issuer liability and holders rights to claim for losses

Advantages of E-money

• Fast and anonymous

• No PIN, signature or verification

• Money transfers directly from electronic purse to the receiver

• Instantly available

Legal Status of E-money

• Qualify as money = not a legal tender

• Merchant is not obliged to accept e-money

E-money Legal problems & risks

1. Data disputes

2. Countermanding

3. Physical loss

Data disputes

• Disputes over balances/transactions are resolved after payment has already been transferred

• Unlike credit cards, there is no period before payment from the cardholder’s account to resolve the dispute

Countermanding (legal prob)

An electronic-purse payment is generally irreversible once made, because payment occurs immediately and unconditionally, and the issuer is usually not involved in disputes between the cardholder and the supplier.

Physical loss (legal prob & risks)

• Under South African Code of Banking Practice, losing an electronic purse places the client in a similar position to losing a wallet containing cash

• Once the client notifies the bank of the loss, the bank may not transfer money from the clients acc to the electronic purse

Legal Effect of an EFT

1. Duties of banks involves

2. Countermand of an EFT

3. Completion of payment

4. Recovery of errorneous payments and reversibility of payment

Duties of banks involved

• Originators bank, Intermediary bank & beneficiary bank

• Duty to beneficiary

• Duty to originator

Originators bank

• Bank has duty to exercise reasonable care and skill when carrying out mandate

• Use of EFT does not identify the person who actually gave the instruction unlike a cheque therefore a bank’s liability is premised on banks negligence and corresponding duty on customer to exercise reasonable care and diligence

Intermediary Bank

• Is a sub-mandatory of an originator’s bank it has no contractual relationship with the originator.

• An intermediary bank appointed by the originator’s bank owes that bank an implied contractual duty of care and skill

Beneficiary bank

• When it receives the payment instruction, the beneficiary bank acts as agent of the originator’s bank.

• Once it executes the instruction, its relationship shifts: it acts for the beneficiary, who becomes entitled to the funds

Duty to Beneficiary

• The beneficiary bank owes its customer (the beneficiary) a contractual duty of care and skill.

• This includes: properly processing received payments; and maintaining its systems/equipment so that it can receive payments.

Duty to originator

• There is no contract between the originator and beneficiary bank.

• The question is therefore whether the beneficiary bank owes the originator a delictual duty of care.

• Key issue: wrongfulness— should the bank be required to process transfers according to banking standards, e.g. checking whether the beneficiary’s name matches the account number

Gilbey Distillers

• Claim failed: it concerned pure economic loss and would extend Aquilian liability into a previously unrecognised area.

• Court rejected the cheque analogy: a collecting bank actively intervenes to verify a cheque, whereas an electronic transfer is initiated through the originator’s chosen contractual relationships.

• Public policy did not justify protecting an originator from the consequences of their own incorrect account no

Academic criticism of Gilbeys

• Malan, Pretorius & Du Toit: Banks are professional service providers dealing with public money and should exercise care by checking whether the beneficiary’s name corresponds with the account number.

• The bank’s mandate is to pay the named beneficiary into the named account; ignoring a mismatch may therefore be inconsistent with professional skill and care

Countermand

A customer may revoke/cancel a payment mandate before it is performed or completed

Countermand of an EFT

• Originators bank must obey a countermand if notice is: clear and unambiguous and actually received by the bank

• Once an EFT is completed it becomes irrevocable (import = customer tries to stop payment or customer dies, is liquidated or sequestrated

Completion of an EFT

No general statutory rule

• No legislation prescribing the exact moment an EFT is completed

• Moment of completion is determined by agreement, system rules or banking practices

When is a payment complete?

• Intra-branch — same branch: When the bank decides to make the transfer unconditionally.

• Inter-branch — different branches, same bank: When the beneficiary’s branch decides to credit the account unconditionally.

• Inter-bank — different banks: When the beneficiary’s bank receives the instruction and decides to make an unconditional credit.

System-based transfers

• Where an established clearing system such as Bankserv is used, its rules determine when payment is complete.

• Payment may be legally complete before the beneficiary’s account is physically credited or the beneficiary is notified

Recovery of Erroneous payments

Where the Bank Followed the Mandate

• If the originator’s bank acted within its mandate, it is entitled to debit the originator’s account for the amount transferred.

• This remains so even where the underlying transaction was induced by the beneficiary’s fraud, misrepresentation or mistake (Nissan).

• Who must recover money = originator from beneficiary (unjustified enrichment)

• Mistake by the originator does not automatically make the bank’s payment unauthorised if the bank acted according to its mandate.

Nissan South Africa (Pty) Limited v Marnitz NO

Nedbank v Pestana (2009)

The SCA held that Nedbank had intended to make an unconditional payment and was not entitled to reverse the transfer merely because SARS had appointed it as an agent under s 99.

Difference between Nissan vs Pestana

Nissan = mistaken payment - no valid transfer

Pestana = intended + completed payment - cannot simply be reversed

What governs an EFT?

1. Common law - Contract of Mandate (banks determine contractual rules and conditions governing their EFT services)

2. Legislation & Banking standards (ECTA, CPA, POPIA & Code of Banking Practice)

ECTA

Scope = applies to electronic transactions and messages

Purpose = creates safe environment using electronic transactions

Electronic agreements = recognises valid agreement through data msg

EFTS & Moble apps = regs electronic communications and transactions

CPA = opport review elec transaction, correct mistakes, withdraw before placing an order

ECTA (Cooling-Off period & bank duties)

A consumer may cancel an order made through an App within 7 days of:

• receiving the goods/services; or

• concluding the contract.

• Cancellation may be without reason or penalty.

• Only the direct cost of returning the goods may be charged.

• Any payment already made must be refunded within 30 days after cancellation

ECTA Bank liability & automated transactions

S43 (5) = secure payment system

S46 (6) = bank’s liability

S20 = automated transactions

Electronic agents

Agreement concluded through an electronic agent

• A party is bound by an agreement concluded by its electronic agent, even if they did not personally review the agent's actions, provided the terms could have been reviewed by a natural person before the agreement was concluded.

Error between a natural person and an electronic agent

• An agreement is void if a natural person makes an error while interacting with an electronic agent that did not provide an opportunity to correct the error, provided the person promptly notifies the other party, returns or destroys any performance received, and does not benefit from it.

Consumer Protection Act

Protection of Personal Information Act (POPIA)

Code of Banking Practice

Advantages of EFTS vs other methods of payment

1. Payment without creditor or debtors presence

2. Payee receives money faster compared to a cheque (5-7 days)

3. Less expensive compared to a cheque

4. Minimal admin duties such as application for new cheque books

5. No risks of replica cheque books being fraudulently produced

6. No risk of staff members writing out unauthorised payments or forging signatures

7. Proof of payment assists in resolving disputes

8. Controlled environment - safer than cheque issuance - no risk of cheque being lost in the mail