16 September 2021
On May 24, 2021, the Supreme People’s Court promulgated the Provisions on Issues Regarding the Adjudication of Bank Card Civil Disputes (the “Provisions”). Consisting of 16 articles in total, the Provisions primarily regulate civil disputes between cardholders and card-issuing banks, non-bank payment institutions, acquirers, merchants, and other parties arising from the entering into bank card contracts and using bank cards, among others. This article focuses on the liability and compensation issues involving fraudulent bank card transactions.
I. Definition of fraudulent bank cards transactions
The types of fraudulent bank card transactions under the Provisions include those involving counterfeit cards and online fraudulent transactions, both of which are specifically defined in Article 15 of the Provisions. Fraudulent transactions with counterfeit cards refer to the use of counterfeit bank cards by others for cash withdrawals, purchases, fund transfers, etc., resulting in a decrease in funds or an increase in the amount of overdraft in the cardholder’s account against the cardholder’s intent. An online fraudulent transaction refers to the stealing of and using the cardholder’s online bank card transaction identification and authentication to execute an online transaction, resulting in a decrease in funds or an increase in the amount of overdraft in the cardholder’s account against the cardholder’s intent.
II. Findings of fact in fraudulent bank card transactions
Articles 4 and 6 of the Regulations provide for the determination of facts in fraudulent bank card transactions. If the cardholder claims that there is a fraudulent transaction, s/he can provide the legal documents that are in force, the location of the real card at the time of the bank card transaction, the place of the transaction, account transaction details, transaction notification, police report record, loss report record, and other evidential materials for support. If the card issuer or non-bank payment institution claims that the disputed transaction was the executed or authorized by the cardholder, it shall assume the burden of proof; they may provide transaction documents, statements, surveillance video, transaction identification and verification information, and other evidentiary materials as proof. In addition, the people’s court, in determining whether a fraudulent transaction had actually occurred, shall thoroughly examine the evidence submitted by the parties and make a comprehensive determination based on facts such as the distance between the location of the bank card transaction and the location of the real card, whether the cardholder executed the underlying transaction, the transaction time and police report time, the cardholder’s card usage habits, the number and frequency of fraudulent bank card transactions, and the existence of security measures in the transaction system, technology or equipment.
III. Attribution of liability in fraudulent bank card transactions
The Provisions specifically stipulate the attribution of liability in fraudulent bank card transactions, which mainly involve breach of contract and tort liability. Articles 7 and 10 of the Provisions provide for the breach of contract liability in fraudulent bank card transactions. In case the cardholder and the card issuer have entered into a bank card contract and a fraudulent bank card transaction occurs, the general provisions of Article 577 of the Civil Code for breach of contract liability shall apply, meaning a party shall continue performance and take remedial measures or provide compensation to the other party if it fails to perform its contractual obligations or its performance does not conform with the contractual terms. Meanwhile, the breach of contract liability under Article 591 of the Civil Code stipulates “mitigation of losses” and Article 592 “reduction of compensation for breach of contract where both parties are liable for breach of contract and negligence” means that after one party breaches the contract, the other party shall take appropriate measures to mitigate damages; no compensation may be requested for the increased damages as a result of the failure to mitigate, and any reasonable cost expended to mitigate damages shall be compensated by the breaching party. Where both parties are in breach, each shall assume the corresponding portion of liability; if the other party incurs damages as a result of a party’s breach, but such other party is at fault for the occurrence of the loss. The liabilities of the cardholder and the card issuer under the Provisions are shown in the following table.
|
Article |
Rightholder Party |
Cause of Action |
Liable Party |
|
Article 7 |
Debit card holder |
The card issuer to pay for the principal and interest that was deducted in the fraudulent transaction and compensation of losses incurred. |
Issuer |
|
Article 7 |
Credit card holder |
In case of a fraudulent bank card transaction, the card issuer to refund the principal and interest of the overdraft deducted, the penalty for breach, and compensation of losses incurred. |
Issuer |
|
Article 7 |
Card
holder |
The cardholder failed to properly take care of identity information, such as the bank card, password, verification code, as well as the transaction verification information. |
Card
holder |
|
Article 7 |
Card
holder |
The cardholder failed to take proper mitigation measures. |
Card
holder |
|
Article 10 |
Card
holder |
The promotional materials provided by the card issuer or non-bank payment institution clearly claimed that it will assume responsibility for making advance compensation payments for online fraudulent card transactions. |
The issuer or non-bank payment institution |
|
Article 10 |
Card
holder |
The non-bank payment institution to make the advance compensation payment for online fraudulent card transactions that occurred as a result of the institution’s online payment system, equipment or technologies failing to meet the requisite safety standards. |
Nonbank payment institution |
If the card issuer and acquirer are not the same entity, the cardholder does not have a contractual relationship with the acquirer. Therefore, the Provisions apply the tort liability provisions of the Civil Code for liability of the acquirer or merchant. Please see the table below for specifics.
|
Article |
Right
holder Party |
Cause of Action |
Liable Party |
|
Article 11 |
Card
holder |
The counterfeit card fraudulent transaction occurred as a result of the acquirer’s failure to protect the cardholder’s safety in card use, or the merchant’s failure to verify the signature of the cardholder or the authenticity of the bank card. |
Acquirer or merchant |
|
Article 11 |
Acquirer or merchant |
The cardholder is at fault for the counterfeit card fraudulent transaction. |
Corresponding reduction or exemption to the liabilities of the acquirer or merchant |
In addition, it is important to note that the Provisions limit the amount of compensation that may be awarded to cardholders. Pursuant to Article 13 of the Provisions, if a cardholder asserts rights against the card issuer, a non-bank payment institution, an acquirer, a merchant, or the defrauder regarding a fraudulent card transaction, the amount of compensation received shall not exceed the total amount of losses caused by the fraudulent transaction of the bank card.
For further information, please contact:
Joyce Wen, Lee Tsai & Partners
lawtec@leetsai.com
