A funds transfer is a direction by the customer to the bank to make the requisite transfer. The legal position depends on the underlying contract, as well as the mandatory terms protective of consumers in the Payment Services Regulations.
The credit institution is obliged obey the payer’s proper instructions. They must act with reasonable care and skill in relation to any order or countermand. A funds transfer is not the equivalent of a cheque. It is not an assignment of the debt. It is a mandate or instruction to pay the payee.
The paying bank may employ a correspondent bank in effecting the funds transfer. This may be the case, where it is not party to the payment systems employed. The various payment organism systems are affiliated with the Irish Payment Services Organisation. Each is given a sort code.
The payee is not in a contract with the payer or its bank. However the payer’s bank owes him a duty of care to ensure the payment. If it fails to undertake this duty at all, or with due care, the payee is likely to have a claim, if it suffers loss.
Settlement of Funds Transfer
Settlements take place through the exchange funds settlement systems of which the banks are members, or with which they are associated. The relationship between the paying and receiving institutions is governed by the terms of the payment system and its rules. If one of the banks is not a party to the payment system, it will use a correspondent bank. The correspondent act as agent for the institution and retain its obligations under the agency arrangement.
The receiving institution implements the instruction of the paying credit institution to credit the amount of the transfer to the payee and accept the transfer. The receiving institution operates as agent of the paying institution in implementing the instruction. Once the instruction has been complied with and the payee’s account is credited, the receiving institution becomes the agent of the payee and these sums are added to the debt represented by the account.
Card Transfers and Withdrawals
Customer activated electronic funds transfers, refer to a number of means by which a customer may activate a funds transfer. Examples are Automated Teller Machines and Electronic Fund Transfers at a Point of Sale. A withdrawal of funds through an ATM has the same legal effect as a withdrawal over the counter. The customer obtains repayment of the funds owed by the credit institution.
Electronic Funds Transfer Point of Sale is effectively a debit card system. The EFTPOS card is operated by Laser Card Services Limited.
Payment by the credit card sets up three contracts: a contract between the charge holder and retailer; a contract between the cardholder and card issuer; and contract between the card issuer and retailer. Similar principles apply, as apply to Electronic Fund Transfer at Point of Sale.
The Irish Bankers Federation is a member of the European Credit Sector Association. Its codes of practice in response to the European Commission recommendation on payment card issuers represents best practice in the area.
Debit Card Contracts
The institution may only debit a customer’s account with proper authorisation. The right to debit the customer’s account ceases when the bank is notified that the card is lost. The Code of Practice requires the issuer to take all steps to prevent the use of the card after receipt of notification of loss or theft.
Contracts should comply with the Code of Practice, which limits the cardholder’s liability to a relatively modest sum, except where she acted fraudulently, knowingly or with gross negligence. The issued is responsible for direct losses incurred due to system malfunction within the issuer’s control. It is not responsible for malfunction which is signalled to the cardholder, by a message at the relevant machine.
Some institutions’ contracts provide exclusion clauses, excluding liability for failures, malfunctions and other circumstances beyond the control. These contracts are subject to the Unfair terms in consumer contracts regulations and the EU Payment services Regulations.
If there is no actual authority to withdraw, because of computer error then the withdrawal will be unpermitted. The ECSA code of best practice puts the burden of proof on the card issuer. If the cardholder denies his card or PIN has been used, the issuer may produce evidence that the transaction occurred. Some contracts place the burden of proof on the customer.
Card issuers owe a duty of care to customers. This duty is particularly important in relation to the risk of to fraud.
Interbank settlements are administered by the Irish Payments Services Organisations. There are a number of companies as set out above. A transfer order will be binding when the transfer order has entered into the payment system. If the member became insolvent after that date, it is not affected.
Large Interbank payments are effected through special presentation of cheques (now rare) or through instantaneous real time gross settlement. Payments are made gross. It is operated by the Irish Real Time Interbank Settlement Company Limited. Settlement is through the accounts at the Central Bank.
Most international transfers are effected by the Society of Worldwide Interbank Financial Telecommunications (“SWIFT”). This is maintained by financial institutions throughout the world. It is a communications network rather than a clearing system. The EU has been behind the creation of TARGET, the Trans European Automated Real time Gross settlement Express Transfer system.
A transfer comprises a number of distinct transactions, rather than an actual transfer of funds. The debtor instructs his bank to pay creditor to transfer funds. The debtor’s bank communicates with the creditor’s bank to arrange creditor’s bank to collect the funds so that they are at the disposal of the creditor.
The banks deal with each other for the purpose of settlement. Each bank deals with its respective customer but they have duties of care to the third parties although this is debatable.
Settlement may occur through intermediaries. The debtors and creditors bank made deal directly if they are both members of the same clearing system. Otherwise they will act through intermediaries.