ALLOCATION OF LOSSES CAUSED BY UNAUTHORIZED PAYMENTS BETWEEN BANK AND ALLOCATION OF LOSSES CAUSED BY UNAUTHORIZED PAYMENTS BETWEEN BANK AND CLIENT

Abstract

This article focuses on rules for allocation of losses between bank and client in connection with card payment. It is stated that these rules on the one hand shall facilitate minimization of total losses and expenses for their prevention, on the other hand they shall ensure fair balance of interests of the contracting parties.

Costs reduction is achieved with the help of economically efficient loss allocation based on three principles: a) loss spreading; b) loss reduction; c) loss imposition.

If application of all three principles provides the same result according to which the loss shall be assigned to the same party, then the proper loss allocation rules can be easily designed. If the results differ, then a comparative analysis of their economic effect is required to define which rule for loss allocation will allow reducing losses at most.

The article contains a comparative study of loss allocation rules provided by Truth in Lending Act, Electronic Fund Transfer Act, Directive (EU) 2015/2366 of the European Parliament and the Council of 25 November 2015 on payment services in the internal market, as well as provisions of the Federal Law of the Russian Federation on National Payment System.

The conclusion is made that the client should be assigned with loss risk to such extent which will facilitate his good faith in keeping the card and its details, as well as in regular monitoring transactions on the card. Other losses should be assigned to bank, which serve as incentive for bank to improve security of card payments.