Electronic Funds Transfer Systems

• Author: M.H. Ogilvie
• Profession: Professor of Law, Carleton University
• Pages: 315-344

315

CHAP TER 9

ELECTRONIC FUNDS

TR ANSFER SYSTEMS

A. INTRODUCTION

The latest stage in the evolution of payment systems between humans

from barter to precious metals to money to negotiable in struments is

the development of payment by computerized electronic funds tra nsfer.

Indeed, Paget describes electronic funds transfer as t he third of three

great ages of payment, succeeding pay ment by cash and paper-based

payment.1 Just as banks have been centr al to cash and paper-based pay-

ment systems, so, too, have they been central to payment by electronic

funds tran sfer (EFT). Yet, despite all the recent marketplace excitement

around the computerization of bank ing services, it is important to state

at the outset that EFT is simply another method of effecting payment,

of transferring economic value, and while its implementation has re-

sulted in some new legal rules re sulting from changes in banking pr ac-

tice, it has little impact on the underly ing concepts in the law about

the legal relationship between ba nk and customer. Each party to the

contract is bound by the same duties and standards of care in giving

and implementing payment inst ructions electronically as in giving a nd

receiving instructions by paper.

1 Mark Hapgood, ed ., Paget on Banking, 12th ed. (London : Butterworths, 2003) at

284 [Paget].

BANK AND C USTOMER L AW IN CA NADA316

In contrast to the United States, where the Elect ronic 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 Europe an Union directives,3

in Canada there i s neither legi slation nor a substant ial body of case law

def‌ining the law in t his area. Rather, in Canada the rules governing

EFT remain with in the realm of ban king industr y practice. The rela-

tive absence of case law may suggest that those r ules are working well

and have led to few disputes in the courts. On the other hand, t he 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 t his is

largely limited to descr ibing the various services of fered, and t hese will

be covered in this and t he next two chapters (Chapters 9 to 11).

The focus of this chapter is t he infrast ructure of the electronic and

paper payments system, to which some references were made f rom time

to time in the previous ch apter, which assumed but did not explicitly

address its ex istence. Whether customer payment or collection instruc-

tions are delivered electronically or by paper to the customer’s bank,

the actual transmission of economic value between and among ban ks

requires an indust ry-wide infrastructure to faci litate that transmiss ion.

These infrastr uctures in Canad a are operated by the Canadi an Pay-

ments Association (CPA),4 of which all deposit-taking f‌inancial i nstitu-

tions are members, so as to have access to the networks which permit

them to offer payment and collection services to their customers. The

major networks operated by the CPA include the Automated Clearing

and Set tlem ent Sy stem (ACSS ), the Unit ed St ates Bul k Exc hang e Sys tem

(USBES) for funds denominated in U.S. dollars, and the Large Value

Transfer System (LVTS) for transfers in excess of $25 million. In addi-

tion, this chapter w ill examine automated debit and credit transfers

within those s ystems. Chapter 10 will exa mine customer card bas ed

payment instr uctions issued on a tr ansaction-by-tran saction basis and

encompassing current est ablished systems, as well as those recently

introduced but whose permanence is st ill unknown. Ch apter 11 will

examine other pay ment mechanisms frequently used by customers,

such as credit cards, t ravellers’ cheques, and ban kers’ drafts. Pr ior to

discussi ng these systems, it is f‌irst necessa ry to examine the regulatory

framework for them, including relevant constitutional i ssues.

2 Title XX of the Fina ncial Institutions Reg ulatory and Interest Rat e 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 Art icle 4A of the Uniform Comme rcial Code.

3 EC Directive 97/5 on Cross Borde r Credit Transfers, [1997] OJ L43/25, int ro-

duced through Cros s Border Credit Transfer Regul ations, 1999, S.I. 1999/1876.

4 Chapter 3, Section E .