A bill providing federal protection against fraud and computer errors for electronic banking customers was reported out yesterday by the House Banking Committee. The Senate Banking Committee voted a similar version in late April.
Under the proposed law, the account holder's liability would be limited to $50, the same limit as on credit card losses, unless consumer fraud or negligence could be proved.
A financial institution, on the other hand, would be liable for damages in connection with faulty transfers - such as foreclosure due to the failure to record a mortgage payment - unless the errors were caused by technical malfunctions beyond the institution's control, like a massive power failure.
Institutions would be required to make complete disclosure of terms, provide receipts for transactions, and correct errors within 45 days after the customer notification. Unsolicited debit cards can be sent to customers provided they have not been validated; customers must first confirm their intention to use them.
Yesterday's bill passed on a unanimous voice vote, but not before a controversial provision to permit reversibility was deleted. This would have allowed consumers to cancel transactions within three days. The measure was bitterly opposed by retail merchants who claimed it would kill point of sale debit card transactions. Reversibility also had been stricken from the Senate version.
As it is, an electronic fund transfer (EFT) would be treated like a cash sale rather than a check transaction. It would be up to the merchant to decide whether to take back the merchandise and make a refund.
EFT services - such as 24-hour automated cash dispensers, point of sale transactions, telephone bill payments - have evolved in recent years without being subject to federal regulation.
Only a few states have EFT laws. The proposed legislation incorporates many of the recommendations of the National Commission on Electronic Fund Transfers, which spent two years probing the problems created by the new technology.
The growth of EFT has been hindered by unresolved legal questions concerning terminals and substantial start-up costs. A single electronic teller and support system can cost $50,000.
Moreover, consumer demand has been slow to develop. The public seems reluctant to relinquish the "float" time built into checks and credit cards. There is a fear that electronic banking through the use of giant computers will lead to an invasion of privacy.
The bill attempts to resolve these situations by prohibiting a merchant from making EFT payment a condition of sale or credit, or from charging more for other forms of payment. It would also prohibit EFT data from being released to unauthorized third parties without the account holder's permission or a court order.
There also is public concern over error and fraud. The Interbank Card Association, representing the Master Charge system, surveyed 1,150 automated teller machines last year and reported fraud losses of $400,000 out of a total of $1.4 billion in transactions. An extrapolation for the estimated 7,700 machines in operation in the United States last year would means total losses of $2.5 million, or about 10 percent of the losses from conventional bank robberies.
People fear their savings can be unintentionally - or even willfully - wiped out by an electronic blip from inside a bank without them knowing it until too late, leaving them no proof they did not make a withdrawal.
There have also been cases of actual and "remote" mugging involving automated tellers. Philadelphia robbers attacked a person who had just withdrawn money from a machine. The person kept the cash but handed over the card and code which the robbers used to withdraw the maximum.
Another technique reported in Brooklyn, involved the use of an accomplice, a phony bank clerk who wave a customer away from the machine after it was activated on the pretense it was not working correctly. The robber stepped in and withdrew funds while the computer was still on line.
Customers also try to defraud banks. There have been incidents where phony customers called banks to get codes pretending they had lost their numbers, or made withdrawals and then claimed computer error, figuring no written record existed.