Electronic Funds Transfer Systems
| Author | M.H. Ogilvie |
| Profession | Chancellor's Professor and Professor of Law, Carleton University |
| Pages | 339-370 |
339
Cha pter 9
ELECTRONIC FUNDS
TR ANSFER SYSTEMS
a. Int roduC tIon
The latest stage in the evolution of payment systems between humans
from barter to precious metals to money to negotiable instruments is
the development of payment by computerized electronic funds tr ansfer.
Indeed, Paget describes electronic fund s transfer as the third of three
great ages of payment, succeeding payment by cash and paper-based
payment.1 Just as banks have been central to cash and paper-based pay-
ment systems, so, too, have they been central to pay ment by electronic
funds tran sfer (EFT). Yet, despite all the recent marketplace excitement
around the computerization of banki ng services, it is important to state
at the outset that EFT is simply another method of effecting payment,
of transferri ng economic value, and while its implementation has re-
sulted in some new legal rules result ing from changes in bank ing prac-
tice, it has little impact on the underlying concepts in the law about
the legal relationship between ban k and customer. Each party to the
contract is bound by the same duties and standards of care in giv ing
and implementing payment inst ructions electronically as in giving a nd
receiving instr uctions by paper.
1 Mark Hapgood, ed., Paget on Banking, 12th ed. (London: Butter worths, 2003) at
284 [Paget].
BANK AND C USTOMER L AW IN CA NADA340
In contrast to the United States, where the Electronic Funds Transfer
Act was passed in 1978,2 or the United Kingdom, where there is a grow-
ing body of common law, as well as various European Union directive s,3
in Canada there i s neither legislation nor a substantial body of caselaw
defining the law in t his area. Rather, in Canad a the rules governing
EFT remain within the realm of banking industry practice. The rela-
tive absence of caselaw may suggest that those rules a re working well
and have led to few disputes in the court s. On the other hand, the cost
of litigation may have deterred most potential litigants. It is difficult
to judge. However, the absence of law means that a text such as thi s is
largely limited to descr ibing the various services offered, and the se will
be covered in this and the nex t two chapters (Chapters 9 to 11).
The focus of this chapter is the in frastructure of the elect ronic and
paper payments system, to which s ome references were made f rom time
to time in the previous chapter, which assumed but did not explicitly
address its exi stence. Whether customer payment or collection instruc-
tions are delivered electronically or by paper to t he customer’s bank,
the actual tran smission of economic value between and among banks
requires an industr y-wide inf rastructure to facilitate that tra nsmission.
The main infrastructures in Canada are operated by the Canadian Pay-
ments As sociation (CPA),4 of which all deposit-taking financial institu-
tions are members, so as to have access to the networks which permit
them to offer payment and collection serv ices to their customers. The
major networks operated by the CPA include the Automated Clearing
and Settlement System (ACSS), the United States Bul k Exchange System
(USBES) for funds denominated in U.S. dollars, and the Large Value
Transfer System (LVTS) for transfers in excess of $25 million. However,
not all economic value in Canada is tr ansmitted through CPA systems.
In 2011, CPA transmitted 55 percent of the volume of payments and
77 percent of the value of payments in Can ada. But other payment meth-
ods, such as the credit card networks, “on-us” intra-bank transactions,
and pre-paid cards, tran smitted together 45 percent of the volume of
2 Title XX of the Fina ncial Institutions Reg ulatory and Interest Rate Control Act of
1978 [FIRIRCA], Pub. L. No. 95-630, 92 Stat. 3641, 3728 (1978), 15 U.S.C.S. 1693.
At the state level, t his is governed by Artic le 4A of the Uniform Commercial Code.
3 EC Directive 97/5 on Cross Border Cre dit Transfers, [1997] OJ L43/25, intro-
duced through Cros s Border Credit Transfer Regul ations, 1999, S.I. 1999/1876;
EC Directive 1998/ 26/EC, Settlement Final ity in Payment and Secur ities Settle-
ment Systems, [1998] OJ L 166/11; EC Directive 2000/31/EC, Ele ctronic Com-
merce Directive, [200 0] OJ L 178/1; EC Directive 20 07/64/EC, Pa yment Services
Directive [2007] OJ L 319/5.
4 Chapter 3, Section E.
Electronic Fund s Tran sfer Systems 341
payments and 23 percent of the value of payments in Canada. Of that
45 percent, 26 percent related to credit cards and 16 percent to “on-us”
items.5 Chapter 10 will examine customer card based payment instruc-
tions issued on a tran saction-by-transaction basis and encompassing
current established systems, as well as those recently introduced but
whose permanence is sti ll unknown. Chapter 11 will ex amine other
payment mechanism s frequently used by customers, such as cred it
cards, travellers’ cheque s, and bankers’ drafts. Prior to disc ussing these
systems, it is first necessary to examine the regulatory framework for
them, including relevant constitutional issues.
B. the r eguLatIon of payment systems
The question of who may regulate derives from the question of which
level of government in Canada has const itutional jurisdiction to regu-
late electronic funds transfer. This jurisdiction is not expressly set out
in the Constitution Acts, but the ans wer must be the federal govern-
ment, for a number of reasons: (i) the paramount and exclusive au-
thority of Parliament over banking pursuant to section 91(15); (ii) the
other provis ions in the Constitution Act, 1867, which suggest a strong
federal jurisdiction over payment methods, through sections 91(14),
(16), (18), and (20), relating to currency a nd coinage, the issue of paper
money, bills of exchange, and promissory notes, and legal tender; (iii)
the jurisdiction of Parliament over trade and commerce pursuant to
section 91(12) because payment systems are the circulation system
for commerce and must necessarily be national in nature; and (iv) the
general authority of Parliament in relation to matters of national im-
portance, whether framed under sect ion 91(10)(a), “other works and
undertakings,” the “peace, order and good government” power under
section 91 or the residual power under section 91. This is not to sug-
gest that there may be some overlap or conflict with prov incial powers,
especially under section 92(13) “property and civil right s,” in relation
to consumer or contract issues, but the national i nterest in a single
federal regulatory regime in a matter as important as t he payments sys-
tem would suggest the overwhelming importance of a single, national
regulatory regime.
Until the 1990s, there was vi rtually no Parliamentary oversight of
the payments system. The Can adian Bankers’ As sociation (CBA) and,
5 Canadian Pay ments Association (CPA), Annual Report 2011 (Ottawa: Canadia n
Payments As sociation, 2012) at 45.
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