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PAYMENT WITH A DEBIT-CARD
Merchant swipes debit card
Debit rather than credit transaction like credit card
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USING THE DEBIT-CARD ACCOUNT
EFTA 903(6)1. Defines electronic funds
transfer to “debit of account”
2. What constitutes an Account?EFTA 903(2)
Terminal reads magnetic strip1. Directs bank to transfer funds
To merchant’s account2. Use of electronic impulse to
obtain funds makes this anElectronic Funds Transfer
3. Covered byElectronic Funds Transfer Act
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DEBIT-CARD RELATIONSHIP
EFTA1. May bank send unsolicited debit cards?2. May such card be sent unsolicited under any circumstances?
Not ValidatedComplete disclosureHow to dispose if not wantedValidated only on requestEFTA 911(b)Unsolicited Debit Card Sent Under EFTA 911
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TRANSFERING FUNDS WITH DEBIT-CARD ACCOUNT
Merchant Must Establish A Relationship With Either
1. The Bank Issuing the Debit Card; or 2. Network processing Debit-Card Transactions for Issuing Bank
IssuingBank
PIN-Based orPIN-Less Regional Or Nat Network
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TRANSFERING FUNDS WITH DEBIT-CARD ACCOUNTTwo basic uses of debit cards1. Depositing & withdrawing funds2. Point-of-Sale transactions,
As substitute for check3. After swiping card, customer
may have to input its PIN. If PINLess Debit card, no number needed
Sends encrypted messageto payor Bank including description of Requested transfer,where payor bank examines
Payor sends encrypted messageApproving transaction, paymentIs final, although payment to merchant’s account made in single payment daily
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COLLECTING BY THE PAYEE
PIN-BASED DEBIT CARDSUsually associated with regional or national networks of financial institutions established solely for facilitating debit-card transactions.
Payor Bank
Encrypted electronic MessageVia telephone to Payor Bank Tagged with PIN
If PIN MatchesAnd Customer hasSufficient funds secondEncrypted message decisionHonor payment
Payment To PayeeAt Payor or wire Transfer to Payee
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COLLECTING BY THE PAYEE
PIN-LESS DEBIT CARDSVisa and MasterCard Introduced PIN-less debit cards. Unlike the PIN-Based cards, there is not immediate settlement, but an authorization leading to hold on customer’s account for amount of transaction
Payor Bank
Encrypted electronic MessageVia telephone to Payor Bank For authorization
If card MatchesEncrypted message authorizingTransaction
Payment To PayeeReceived few daysLater same way asCredit card transaction
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FRADULENT TRANSACTION
FEATURES MINIMIZING LOSS1. Rules Preventing unsolicited mailings of debit-cards.2. Mailing Card and PIN saperately3. Encryption messaging4. PIN Pad Protections
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FRADULENT TRANSACTION
DEBIT-CARD SYSTEM MUST RESOLVE TWO QUESTIONS
1. Who bears the loss as between merchant and Payor Bank.2. Who bears the loss as between the bank and customer
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FRADULENT TRANSACTION
BETWEEN MERCHANT AN PAYOR BANK1. Risk on Bank because in better position to mitigate loss.2. Bank has ability to design cards to limit possibility of
counterfeiting and incorrect identifications
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FALSE AUTHORIZATION OF TRANSACTION
BETWEEN PAYOR BANK & CUSTOMER 1. EFTA 909(a) no liability without minimal security.2. Limitation of Liability
a. $50 Limitb. $500 Limitc. Bank Statement