Online Banking (e-banking)

How Banks Operate using the Internet?

Many banks offer their customers accounts they can operate themselves through the bank’s website on the Internet. Customers can go to the website to transfer money from one account to another, pay bills, check their account balance, see and print out statements, arrange overdrafts and carry out their transactions.  

Internet banking is commonly called ‘e-banking’. To prevent fraud from ‘hackers’ (thieves who break into Internet bank accounts to steal money), customers are given passwords and other security codes to use when they access their accounts.

People using e-banking facilities can still pay money into an account using the post or by visiting a branch in the traditional way, and withdraw cash from one of the back’s branches or a cash machine. The laws that govern banking –notably the Supply of Goods and Services Act 1982 – apply equally to e-banking.

Who Regulates e-banks?

e-banks operating inside the UK are regulated by the Financial Services Authority (FSA) and observe the banking code.  Outside the UK, banks are regulated by authorities in their home country, so before you open an Internet account with one, ask about protection – particularly complaints procedures and compensation arrangements if your account security is infringed or if the bank stops trading.

In the European Economic Area (EEA – the majority of EU states including Iceland, Liechtenstein and Norway), e-banks come under the Electronic Commerce Directive. This regulates the way in which service providers can advertise themselves online, make contracts, establish codes of conduct and make these codes knows to the public. For more details, contact the Department for Trade and Industry (DTI).

How Secure is e-banking?

The banking Code does not protect customers against online fraud such as attacks by hackers. So, to protect yourself, you should read the terms and conditions of an Internet account carefully to see what guarantees are offered if you are the victim of online fraud. Accounts offer four types of guarantee: 

No-strings Guarantee

The bank guarantees that you will not be liable for any loss. 

Special Requirements

You are not liable for any loss provided that you comply with special requirements. For example, you must change your password every twelve months or more often, and keep your anti-virus software up to date.

Limited Liability

The bank initially holds you liable for a maximum sum, usually £50. Once you report the fraud, you are no longer liable. 

Full Liability

You are liable without limit for all transactions using your security code – some banks take the view that hacking is beyond their control.

Changes to the Law

e-banking is a form of distance-selling (the selling of goods and services when there is no face to face contact between the seller and the buyer – for example, when a sale is made by phone, via a catalogue or the Internet). As a result, it will come under the Distance Marketing of Consumer Financial Services Directive when this becomes law in EEA countries in October 2004.  

The directive protects consumers who enter into financial services contracts on the Internet by stipulating that they must be given detailed, clearly understandable information about the supplier, the product offered by the supplier, the type of distant-selling contract the buyer is being asked to agree to, and what form of redress the consumer can draw on if a dispute occurs – for example, if the product supplies is not the one that was sold.

If the product is a bank account, the consumer must be told the current interest rates and all deductions and charges relating to the account. The Directive also stipulates that the consumer must have the right to a cooling-off period, when they can withdraw from the contract without charge. 

Example

A Double Debit

You make monthly payments to a building society. Last month, it debited your bank account twice. The error resulted in an unauthorised overdraft with a high interest charge and a bounced cheque. The building society says it is not liable for the bank charges. In this case, even though the building society made the mistake, it is your bank that is responsible for operating the direct debit scheme by which you pay your mortgage. So, your bank will put the error right. 

Under the direct debit guarantee, if an error is made by either the organisation collecting payments (in this case, your building society) or your bank, you are entitled to a full and immediate refund.

Contact your bank and explain what has happened. The bank should re-credit your account and refund the charges. Ask your bank to offer something as a goodwill gesture to cover the embarrassment caused by the bounced cheque. If may be willing to do so, even though the direct debit guarantee does not entitle you to compensate.