Credit Card Transactions
A credit card transaction involves three parties. There is a contract between the retailer/supplier and the cardholder. This is effectively, the underlying sale. There is a contract between the supplier/retailer and the card-issuing company which undertakes to honour the card by playing the supplier on presentation of sales vouchers and proof of sales.
There is a contract between the card-issuing company and the buyer/ account holder by which the account holder agrees to pay the card-issuing company for liabilities incurred as a result of card use. The contract between the cardholder and issuer is set out in the agreement signed when the card is received. This is in the issuer’s standard terms.
Consumer and Issuer
Some of the Consumer Credit Act obligations do not apply to a credit card agreement, such as the requirement to sign and the cooling-off period. It is not necessary to give a copy of the agreement.
The code of best practice on card-based payment systems sets out basic provisions regarding liability, imposition of charges, and loss through fraud. The code is in general terms and significant variations are permissible.
Standard form credit card contracts oblige the holder to take security measures. This will include obligations in relation to the use of the PIN, signature and taking care that the card is not stolen. The holder agrees not to exceed the limit.
The position regarding fraudulent use will be determined by the contract: Code of best practice limits liabilities to a certain amount €50 unless the cardholder has acted fraudulently, knowingly, with gross negligence, or in breach of conditions.
The Consumer Credit Act gives the consumer who uses a card a limited right of action against the card issuer if the goods are faulty. This only applies if the card issuer and supplier have a pre-existing agreement under which credit is made available exclusively by the retailer/creditor to the customer. This will exclude most credit card agreements. It may apply in particular types of shops and petrol stations.
Card Issuer and Supplier
The card issuer and payee/supplier enter a contract in relation to payments. This will not be a consumer contract. The supplier agrees to take precautions in relation to verification of the authentic use of the card. It may agree to make a credit enquiry if the amount charged is above a particular limit and check the card against records of stolen cards. Failure to do so may make the card issuer refuse to reimburse the supplier.
The card issuer will be entitled to charge back the supplier/ retailer. Charge back is likely to apply where the card is presented by someone other than the genuine cardholder. The supplier may therefore be left with the risk of loss in the transaction.
The third contract is the ordinary supply contract. It has been held that payment by credit card is an absolute payment. In the event of insolvency of the card issuer, the supplier would be an unsecured creditor of the credit card company. This is unlike the position with a cheque, which is conditional payment only.
Negotiable Intruments & Cheques
A permission note is a two party negotiable instrument. It is an unconditional promise in writing by one person to another agreeing to pay an amount a fixed or determinable future sum to a person or to its order or bearer. It has the same characteristics as a bill of exchange and cheque. Unlike a bill of exchange, but like a cheque, it need not be accepted.
It is dealt with in much the same way as a bill of exchange. It must be presented within a reasonable time for payment. It must be presented for payment of the place and time concerned in order to make the payer liable. Payment is also in order to make any endorser liable. Most of the provisions in relation to bills of exchange equally apply to promissory notes.
Some cheque clearance may take place locally without using the Irish Paper Debit Clearing Company. If a cheque is lodged in the same branch, collection may be undertaken internally. Similarly, cheques lodged for collection at different branches of the same bank may also be cleared internally.
If cheques are lodged at different banks, a payment involves the use of the cheque clearing system operated by Irish Paper Debit Clearing Company Limited [or successor]. Settlement of cheques takes place through accounts maintained by each clearing bank at the Central Bank. Settlement is made on a multi-net basis so that sums are offset at the end of each day.
Cheques generally take three working days to clear. The cheque is lodged and is noted on the payee’s account. The branch sends its cheques to the bank’s central clearing department. It sorts, divides, and sends them to the clearing departments of each of the banks on which they are drawn. The aggregate value is recorded at the close of business.
Each paying bank pays the collecting bank the value of cheques on the second day. The paying bank can offset monies due from the collecting bank against the amount it owes the collecting bank. The cheque is cleared for value at the close of business. It is credited to the account for the purpose of calculation of interest.
On the third day, the clearing department of the paying bank sends the cheque to the payer’s branch. If there are sufficient funds the account is debited and the debit is backdated to the previous day for interest purposes. The cheque has been paid and the payee can withdraw the proceeds from its account.
Where, however, there are insufficient funds in the payer’s account, the paying bank returns the cheque to the branch of the collecting bank. The payer’s branch has until close of business on the fourth day to pay the cheque irrevocably or return it unpaid. Dishonoured cheques should arrive on the fifth day.
The collecting bank debits the payee’s account with the amount credited on day two. Some banks permit payment against uncleared cheques. This however leads to the possibility of fraud. .
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