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With expected increase in card-based transactions and movement towards paperless transactions, we need to adopt a new piece of legislation, similar to the Regulation E of the US
It is a praiseworthy move that the Reserve Bank of India (RBI) has decided not to grant any further extension to banks for complying with security norms with respect to card transactions. RBI has said that banks will have to bear the cost of fraudulent credit card transaction through point of sales (PoS) terminals that do not have prescribed security features. As a customer friendly measure, the RBI has directed banks to follow the course of action, if a fraudulent transaction is reported by a customer on a credit card through any PoS terminal.
As per RBI circular, banks are expected to comply with the following course of action:
While this is one good move by RBI, after it decided to ban zero equated monthly instalments (EMI) scheme, it still does not solve the problem of the credit card and debit card holders. Card- related frauds are very common and customers face several problems with respect to the security of the card and potential threat that arises from misuse of cards. Customers holding credit card or that matter any electronic device need better protection against frauds. In order to provide better protection to the customers, there is a need to carry out comprehensive changes in the card industry. The famous US regulation called “Regulation-E” can act as the guide in implementation of preventative measures against credit card frauds.
What is Regulation E?
Regulation E popularly known as REG-E outlines the rules and procedures for electronic funds transfers (EFTs) and outlines guidelines for those who sell and issue electronic debit cards. Regulation E establishes certain types of protection for consumers that employ electronic transfer systems.
How does Regulation E protects card holders?
Regulation E provides protection to the card holders by defining the maximum liability of a card holder. As per the regulation, “A consumer shall be liable for any unauthorised electronic fund transfer involving the account of such consumer only if the card or other means of access utilised for such transfer was an accepted card or other means of access and if the issuer of such card, code, or other means of access has provided a means whereby the user of such card, code, or other means of access can be identified as the person authorized to use it, such as by signature, photograph, or fingerprint or by electronic or mechanical confirmation.”
This statement clearly indicates that unless it is established that the card was accepted by the customer, the liability of the customer does not arise. While identifying the consumer’s liability, the act says that in no case the liability of the customer would exceed $50.
In the worst case scenario, when the customer fails to notify the fraudulent transaction to the issuer of the card, the limit of penalty has been defined as $500.
Burden of Proof
Another favourable aspect of the regulation is that the burden of proof in the event of a fraud is with the financial institution. As per the Act, the burden of proof lies with the financial institution, “In any action which involves a consumer's liability for an unauthorized electronic fund transfer, the burden of proof is upon the financial institution to show that the electronic fund transfer was authorized or, if the electronic fund transfer was unauthorized, then the burden of proof is upon the financial institution to establish that the conditions of liability.”
This kind of regulation requires support of insurance on a large scale. Additionally, the technology needs to be advanced for implementation of a regulation at the scale of REG-E. However, with expected increase in card based transaction and movement towards paperless transactions we need to adopt a new piece of legislation, which should be extremely customer friendly that in turn would encourage faster transactions and make transaction system more efficient.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post-graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
Although the most corrupt and biggest offenders are Chinese companies, it is unlikely domestic pharmaceutical and food manufacturing firms will face the kind of regulatory challenges imposed on their foreign competitors any time soon
The Chinese leadership wants to rebalance and reform their economy. At a recent conference, Li Keqiang, China’s prime minister, promised that the government would institute a broad range of market-friendly economic reforms. For a change, all businesses will now have equal access to markets and legal protection. According to Premier Li, “Reform and innovation provide an inexhaustible driving force.” The centre piece of this program is a free trade zone in Shanghai. The free trade zone allows for a slight liberalisation in financial products offered by Western funds, but biggest change is to allow unfettered access to Facebook.
It would appear that the Chinese economy is strong enough for these reforms. According to several recent data points, China’s economy is starting to rebound. But there are other ominous indicators. China Beige Book, a poll of 2,000 firms, points to a slightly different direction. Mining and transport growth sank as did manufacturing and real estate activities. Services and retail activities managed only slight gains after a poor second quarter. The author of the study Leeland Miller, the president of CCB International, said "This release represents perhaps the most surprising—and important—data that we have released in seven quarters of polling, with results that undercut the conventional wisdom that [the third quarter] saw both significant stimulus and a significant recovery. Both appear to be a fiction". It continued, "The yellow lights our credit data have been flashing since [the fourth quarter of last year] may now be flashing red."
It is not only the Chinese economy that may not be as advertised. The reforms may not materialise either. As Xi Jinping consolidates power, the government is in the process of a crackdown on corruption. Oddly, it appears that the most corrupt companies just happen to foreign. Not that the Western companies are totally blameless.
The most widely publicised inquiry is a bribery probe into British firm GlaxoSmithKline (GSK). Other drug companies are under investigation as well including France’s Sanofi, joint ventures of Germany’s Merck and Boehringer Ingelheim, Novartis of Switzerland, Baxter of the US and Denmark’s Novo Nordisk. Certainly some of these companies, specifically GSK, probably paid bribes to market their wares, however it is easier to target high-profile foreign companies. The Chinese public is outraged over high prices and safety scares and the foreign companies make convenient scapegoats.
It is not only the foreign drug companies that are targeted. The scandals surrounding baby formula poisonings have created a whole system for the informal importation of foreign brands often at twice the price of local products both foreign and domestic. Naturally parents are outraged. As you would suspect the foreign companies including Mead Johnson and Abbott from the US; Dumex, a subsidiary of France’s Danone; Royal FrieslandCampina of the Netherlands, and New Zealand’s Fonterra, the world’s biggest dairy company, have all been targeted for investigations and fines.
As China’s global economic presence has grown, so has the reach of its regulators. Large mergers now must get antitrust approval from the Chinese. Seemingly unfair or arbitrary actions of Chinese authorities have caused concern in the US but so far the issue has not been part of bilateral negotiations. This does not mean that it has not caused concern for companies doing business in China. Antitrust officials have recently convened meetings of several dozen in-house lawyers. The officials told the lawyers to expect further investigations, and warned of dire consequences if they sought outside legal help to challenge regulatory action through the courts.
Chinese regulators are far more circumspect in challenging local state owned companies. State owned companies have significant power and are well-connected. Although the most corrupt and biggest offenders are Chinese companies, it is unlikely domestic pharmaceutical and food manufacturing firms will face the kind of regulatory challenges imposed on their foreign competitors any time soon.
State owned or controlled companies may be exempt, but private firms with the wrong political connections are also targeted. Last year, in the Sichuan capital of Chengdu, the Communist Party announced that a politician who ran the city as the Party’s secretary and mayor was detained on suspicion of corruption. This year five of the city’s richest citizens have disappeared from view. Zeng Chengjie, a real estate developer from Hunan, was executed allegedly because he insisted on paying back his creditors not only the principal that was required but also the interest, which was prohibited.
The Chinese economy is truly slowing. If years of profligate lending are finally catching up with an overheated economy mired in debt, then it will take a lot more than a special economic zone in Shanghai to solve the country’s problems. It will take reforms that limit government power to interfere with legitimate private business. If the government for political reasons feels that it must direct public anger at foreigners rather than the corrupt and connected, then it will never be able to sustain growth. Even unlimited access to Facebook won’t save them.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)