PAYMENT WITH A DEBIT-CARD

Merchant swipes debit card

Debit rather than credit transaction like credit card

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

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

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

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

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

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

FRADULENT TRANSACTION

FEATURES MINIMIZING LOSS1. Rules Preventing unsolicited mailings of debit-cards.2. Mailing Card and PIN saperately3. Encryption messaging4. PIN Pad Protections

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

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

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