Online Banking - CHOICE # 364

e-banking is fast on the growth - rising from 1.1 million personal online banking accounts in 2001 to 3.6 million in mid-2006.

But, to what extent, are consumers well protected in keeping pace with this rising phenomenon?

The Consumer Council has conducted a survey on 20 banks to examine the issues of transparency of terms and conditions governing online banking service, and consumer rights in these transactions. 17 of the banks responded to the questionnaire survey.

The result is most revealing in pointing to the question of consumers' recourse to compensation for loss if things go wrong. 

The key finding indicates that unless it can be proven the loss is caused by the gross negligence or wilful default of banks, otherwise the consumers may not be compensated.

In the survey, it was found that in the event of an internet banking system breakdown, half of the banks (9 out of 17) would adopt a "case-by-case" approach, but without committing to whether compensation would be granted to affected customers.

The remainders (8 banks) expressly declined any liability for monetary loss.

According to the Hong Kong Monetary Authority (HKMA), in past complaints received, if consumers were able to produce proof that their loss was caused by internet banking system failure, their cases would all be resolved satisfactorily by the banks concerned (including the offer of appropriate redress to the aggrieved).

Consumers are advised to evaluate the risk involved in online banking and, more importantly, to retain other alternative means for banking transactions such as phone banking, ATMs and retail branches, etc.

The survey also looked into the chances of consumers obtaining compensation in the event that the consumers log in a fraudulent website, through their own carelessness.

It was found that 9 banks (53%) would consider redress on a "case-by-case" basis while 5 banks (29%) would assume liability only if the loss is caused by their own gross negligence. The remaining 3 banks (18%) turned down any liability for such loss.

According to the Code of Banking Practice Chapter 6 Clause 40: Unless the customers act fraudulently or with gross negligence, they should not be responsible for any direct loss suffered by them as a result of unauthorized transactions conducted through their accounts.

Consumers should always be on the guard for fraudulent websites, although such incidence appears to be declining in recent years - only 17 cases of fraudulent websites were reported in 2006, a 32% and 50% drop from 2005 and 2004 respectively.

While the HKMA considers the issue of compensation a matter between the banks and the consumers, banks are required to follow strictly the HKMA's guidelines on complaint handling procedures and Code of Banking Practice, by setting up internal complaint mechanism to ensure customers' complaints will be dealt with swiftly and justly.

Furthermore, the survey showed that banks generally would not assume liability for any inaccurate and inadequate information such as instant stock price quotations, although they are taking measures to ensure accuracy in the provision of financial information to customers.

The Code of Banking Practice currently does not cover the liability issue of banks on such matter.

Consumers are, therefore, advised to deliberate the information with due care and caution before making an investment decision.

In the course of the survey, the Consumer Council also found that nearly all banks commonly used and relied on exemption clauses to partly or fully exclude their liability and responsibility.

The Consumer Council is of the view that consumers should be informed that exemption clauses are subject to control, and may or may not be valid under the law.

The Control of Exemption Clauses Ordinance stipulates that: In the case of loss and damage other than death or personal injury, a person (a legal entity) cannot exclude or restrict his liability for negligence by reference to any contract term or notice except in so far as the term or notice satisfies the requirement of reasonableness.

As such, even though a contract consisting of exemption clauses has been signed, the consumer should still be able to hold the bank liable for the loss arising out of negligence in applicable circumstances.

Nonetheless, to protect their rights, consumers are reminded that an electronic contract for online banking services is as legitimate as a paper based contract. Acceptance of the contract is mostly in the form of online confirmation (10 banks), or signature, or both. 

All banks were found to post their terms and conditions on their website for easy access of consumers. So do fully understand the contents before acceptance.

For security, consumers are advised never to conduct any banking transaction via a public computer.