A consumer disputes redressal commission in Kerala has directed Federal Bank to restore Rs 9,854 to a customer who fell victim to an online financial scam, ruling that financial institutions cannot shift losses onto account holders without concrete proof of customer negligence.
In its August 5 order, the panel concluded that the bank failed to establish that the complainant acted negligently or voluntarily shared confidential credentials. Alongside ordering a full reimbursement of the debited funds, the tribunal instructed Federal Bank to pay the customer Rs 5,000 in compensation and Rs 3,000 to cover legal costs within 30 days.
Commission Rejects Bank Claims of Customer Negligence
The three-member bench, comprising Commission President P.V. Jayarajan and members Preetha G. Nair and Viju V.R., highlighted that under Reserve Bank of India directives, banks are obligated to cover financial losses resulting from unauthorized electronic transactions unless the institution can conclusively prove customer fault. The panel noted that mere assumptions of careless behavior do not absolve a bank of its statutory responsibility.
Details of the Social Media Scam
The complaint stemmed from an incident on July 13, 2021, when the Federal Bank savings account holder encountered a digital scratch card while browsing social media. The pop-up displayed the logo and typography of digital payments platform PhonePe and advertised an unlimited cash back offer.
Being a regular user of payment applications such as Google Pay and PhonePe, the customer clicked on the promotional card twice. Immediately following the interaction, two separate unauthorized debits of Rs 4,885 and Rs 4,969 were deducted from his bank account.
Reversal of Initial Credit Prompted Dispute
Upon discovering the fraudulent debits, the customer reported the issue to Federal Bank. Recognizing the unauthorized nature of the activity, the bank initially restored the full amount of Rs 9,854 to the account on July 15, 2021. However, on August 4, 2021, the bank reversed the credit and withdrew the funds again.
Faced with the unexpected loss, the customer approached the consumer commission, citing deficiency in service and unfair trade practices on the part of the financial institution.
Bank Defense Cites Authentication Requirements
Representing Federal Bank, advocate S. Raghukumar argued before the tribunal that the institution bore no responsibility for third-party scratch cards or external transactions. The defense stated that an internal investigation revealed the account holder routinely performed UPI payments.
The bank maintained that executing a UPI transfer requires entering a specific payment address and a private personal identification number known exclusively to the account holder. Consequently, the bank asserted that the transactions could only have occurred with the customer’s consent or through shared credentials, making the account holder solely responsible.
Ruling Confirms Burden of Proof Lies With Banks
The consumer commission rejected the bank’s arguments, holding that the customer demonstrated due diligence by immediately reporting the unauthorized deductions. Because Federal Bank produced no documentary evidence proving that the user compromised security protocols or knowingly participated in the fraud, the commission affirmed that the liability for the unauthorized electronic transactions rests entirely with the bank.
