By Onyinyechukwu Umeh Esq.
1.0 Introduction
Electronic banking has become an integral part of financial transactions in Nigeria. Through mobile applications, internet banking and instant payment platforms, customers can transfer money between accounts without visiting banking halls. However, the convenience of these services has been accompanied by a plethora of complaints about failed transfers, wrongful debits and delayed reversals.
One recurring problem arises when a customer’s account is debited but the intended beneficiary receives no corresponding credit. In some cases, the sending bank records the transaction as successful, while the receiving bank maintains that no funds have been received. The customer is then left to pursue both institutions in an attempt to recover the money.
The consequences can be serious as a failed transfer may disrupt a business transaction, delay the payment of rent or prevent an individual from meeting an urgent financial obligation. Where the money remains unrecovered, the customer bears a financial burden arising from a payment system operated by financial institutions.
The question, therefore, is not how quickly a failed transaction should be reversed, but which institution should bear responsibility when a customer’s money is lost or withheld in the course of an electronic transfer.
2.0 The Legal Framework Governing Failed Bank Transfers in Nigeria
The Central Bank of Nigeria (CBN), in exercise of its regulatory powers under the Central Bank of Nigeria Act 2007, particularly sections 2(d), 33(1)(b) and 47(2), issued the Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services in Nigeria 2018. The Regulation prescribes the responsibilities of institutions involved in instant electronic transfers.
Under clause 5.2 of the Regulation, a sending institution is required to refund the proceeds of a failed transaction returned by the receiving institution within ten minutes. Where the sending institution is unable to process a transaction, the funds must be refunded within one hour after the next settlement closure.
Clause 5.3 places corresponding obligations on receiving institutions. In particular, clause 5.3(2) requires the receiving institution to credit the beneficiary’s account within 60 seconds. Under clause 5.3(3), it must ensure that the funds have actually been credited before confirming successful completion to the sending institution. Where technical or security considerations prevent immediate credit, clause 5.3(4) requires notification of the relevant parties and provides for the pending credit to be applied as soon as the issue is resolved, subject to a maximum period of 24 hours.
The Regulation also addresses dispute resolution. Clause 10.1.2 requires instant EFT disputes to be resolved within three working days. Where the sending and receiving institutions fail to agree, clause 10.1.3 requires the aggrieved institution to report the disagreement to the CBN’s Director of Consumer Protection within five working days.
Under clause 11, a failed NIBSS Instant Payment transaction that is not reversed within 24 hours attracts a sanction of ₦10,000 per item, following a complaint by the sender or beneficiary. This is a regulatory sanction against the relevant institution and does not automatically constitute compensation payable to the customer.
The CBN’s Consumer Protection Framework 2016 provides further protection in Paragraph 2.7.3 which requires financial institutions to maintain customer compensation policies covering service failures, including unauthorized or erroneous debits and financial losses resulting from staff negligence or fraudulent activities.
3.0 Who Bears Liability When a Bank Transfer Fails?
Responsibility for a failed transfer depends on where the failure occurred and the obligations of the institutions involved.
Liability of the Sending Bank: The sending bank is responsible for properly processing and transmitting the customer’s payment instruction. Where it debits the customer’s account but fails to transmit the instruction, processes an incorrect amount or neglects to refund a transaction it was unable to process, it may be liable for breach of its contractual obligations or negligence. This responsibility is clearly captured in the provisions of clause 5.2 of the 2018 Regulation.
Liability of the Receiving Bank: The receiving bank is equally accountable for its part in the transaction. Where it receives the funds but fails to credit the beneficiary’s account within the prescribed period, it may be held responsible for the resulting failure. Clause 5.3 expressly requires the receiving institution to confirm successful completion only after the beneficiary’s account has been credited.
Liability of Payment Service Providers: Payment service providers and switching companies may also bear responsibility where negligent processing or a failure within their systems causes the loss. Clause 5.1 requires instant EFT service providers to establish operational guidelines identifying the responsibilities of participating institutions and their respective liabilities where losses arise from negligence.
The Supreme Court’s decision in the case of Union Bank of Nigeria Plc v Umeoduagu [2004–2006] 13 NBLR (Pt I) 128 is relevant to the obligations of banks in this regard. In this case, the customer purchased seven bills totaling US$121,038 from Union Bank in 1982 for transfer to his overseas suppliers. The bank failed to remit the money, and the customer eventually discovered in 1995 that the funds were still being held in the bank’s account with the Central Bank of Nigeria. Despite demanding a refund, the customer was unsuccessful and commenced legal proceedings.
The dispute before the Supreme Court centered principally on when the customer’s cause of action arose and whether his claim was statute-barred. The Court held that, once it became clear that the bank had defaulted in remitting the customer’s money, it was obliged to refund the money as a matter of course. The Court dismissed the bank’s appeal.
Although the case concerned an international remittance rather than an electronic bank transfer, it is submitted that the principle is still very much relevant as a bank that fails to carry out a payment instruction cannot retain the customer’s money without providing an appropriate remedy.
There is, however, an important distinction where the customer supplies incorrect beneficiary details. Under clause 5.4 of the 2018 Regulation, customers are required to provide accurate account details and report transaction problems promptly. Where a bank correctly processes an instruction containing incorrect details supplied by the customer, liability cannot automatically be placed on the bank. Conversely, where the error originates from the institution, the customer should not bear the resulting loss.
4.0 Remedies Available to Affected Customers
A customer whose account has been debited without a corresponding credit has several avenues for redress.
- The first is to lodge a formal complaint with the sending bank, providing the transaction reference, amount, date and evidence of the debit. The sending institution is expressly required under clause 5.2(12) of the 2018 Regulation to receive complaints relating to electronic transfers and pursue their resolution.
- Where the complaint remains unresolved, the customer may escalate the matter to the CBN’s Consumer Protection Department. The CBN’s published complaints procedure requires customers to approach their financial institution first and ordinarily allow two weeks for resolution before escalation.
- A customer may also institute proceedings before a court of competent jurisdiction where the facts disclose a breach of contract, negligence or another actionable civil wrong. Depending on the circumstances, the court may order recovery of the money wrongfully debited and award damages for additional losses established by evidence.
The availability of compensation will depend on the nature of the breach and the loss suffered. A customer is not automatically entitled to substantial damages merely because a transaction failed.
5.0 Gaps in the Existing Framework and Proposed Reforms
Despite the existing regulatory provisions, customers continue to experience difficulties recovering funds from failed transactions. One major problem is the tendency of participating institutions to shift responsibility to one another. A customer may be directed to the receiving bank, the sending bank or the payment service provider without receiving a definite explanation of what happened to the money.
The CBN should strengthen the existing framework by requiring participating institutions to investigate disputed transactions jointly. Customers should be able to report a failed transfer through their sending bank without having to pursue every institution involved in the transaction.
There is also a need for more effective automatic reversal mechanisms. Where a transaction is confirmed as unsuccessful, the reversal should be initiated without requiring customers to make repeated complaints.
Furthermore, the CBN should strengthen monitoring of compliance with prescribed timelines and ensure that institutions responsible for repeated failures face appropriate regulatory consequences.
Finally, customer compensation should be treated separately from regulatory sanctions. The existing compensation policy requirements provide a foundation, but financial institutions must ensure that customers who suffer established financial losses through institutional negligence receive appropriate redress.
- Conclusion
Failed electronic transfers have become a major consumer protection concern in Nigeria’s banking sector. Although the CBN has prescribed timelines for transaction processing, reversals and dispute resolution, the effectiveness of these provisions depends on the willingness of financial institutions to comply with them.
A customer who has provided accurate payment instructions should not be left to bear the consequences of errors or failures within the banking system. Sending institutions, receiving institutions and payment service providers must each account for their respective responsibilities.
Nigeria’s cashless banking policy must therefore be supported by effective consumer protection. The ability to transfer money electronically is important, but the ability to recover money when a transaction fails is equally essential to public confidence in the ban
References
- Central Bank of Nigeria Act 2007, ss 2(d), 33(1)(b) and 47(2).
- Central Bank of Nigeria, Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services in Nigeria (31 July 2018), cls 5.1–5.4, 10.1 and 11.
- Central Bank of Nigeria, Consumer Protection Framework (7 November 2016), para 2.7.3.
- Union Bank of Nigeria Plc v Umeoduagu [2004–2006] 13 NBLR (Pt I) 128 (SC).
- Central Bank of Nigeria, ‘Complaints Management’, Consumer Protection Department, available at https://www.cbn.gov.ng/supervision/cpdcomgt.html.
Onyinyechukwu Umeh Esq. is a Legal Practitioner and can be reached via +2347014393559 or giseleumeh01@gmail.com.