Recently, the functioning of algorithms used by banks and financial institutions has become increasingly opaque and difficult to review. This lack of transparency has led to erroneous, arbitrary, and unfair outcomes, such as situations where customers are debited without the corresponding funds being credited to the recipient bank.

Despite significant investments in infrastructure and charges associated with automated processing and settlement of financial transactions, these issues have resulted in numerous failed transactions. Banks have a crucial responsibility to oversee their technology and ensure that advancements in banking automation adhere to core values such as truthfulness, transparency, accountability, privacy, and security.

They must protect customers’ funds in their custody and are liable for any losses arising from unauthorised or fraudulent transactions. Given that banks charge for both operational and credit risk in cases of failed and successful funds transfers, as well as unauthorised debits, they must demonstrate due care, skill, and adequate infrastructure in managing customer accounts.

The bank’s duty includes ensuring that its systems are robust and reliable, and can effectively address any issues that arise. This responsibility extends to maintaining high standards of operational integrity and ensuring that technological advancements align with their commitment to safeguarding customer interests.

In the United States, the Electronic Fund Transfer Act (EFTA) was enacted in 1978 to address the shift from physical checks to electronic monetary transfers. The Act was introduced to build trust and predictability for consumers using electronic payment methods, particularly in situations involving errors or fraud. It mandates that financial institutions allow consumers to dispute incorrect financial statements and outlines procedures for resolving disputes between consumers and institutions. The EFTA is a federal law designed to protect consumers engaging in electronic money transfers. It sets forth guidelines for correcting errors and limits liability for unauthorised transactions.

The Act covers various types of transfers, including ATM withdrawals, direct deposits, and online payments, with the aim of enhancing transparency and security in electronic financial transactions. It establishes specific timeframes for consumers to report issues such as incorrect amounts, unauthorised transfers, or missing transactions.

Financial institutions are required to investigate these errors and correct them within a designated period. If the investigation extends beyond the standard timeframe, provisional credit must be provided to the consumer’s account. The EFTA ensures that banks are held accountable for resolving these issues and specifies their liability in cases of non-compliance or errors.

Public dissatisfaction with banks and financial institutions has surged, with daily customer feedback on social media highlighting increasingly erratic digital services from these institutions. This issue primarily stems from inadequate investment in technology infrastructure, leading to the lack of an efficient digital portal for handling high volumes of electronic transactions and resulting in faulty application programming interfaces (APIs) due to customer traffic.

To address these problems, banks must upgrade their technology infrastructure and security measures to facilitate seamless payment and settlement of financial transactions. Additionally, they should integrate ethical principles into the design, implementation, and operation of automated systems to minimise losses and create a virtual environment that prioritises consumer welfare.

Incorporating clear regulations and provisions that specifically address fake alerts from automated banking systems could help Nigeria establish a more secure and responsive banking environment. Banks must implement AI solutions that optimise the use of consumer data, ensuring that any data in their possession is adequately protected.

In the event of a data breach, banks should take full responsibility and work to mitigate harm. Such measures will not only help prevent customer dissatisfaction but also bolster overall trust in the financial system. Holding banks accountable for errors and providing a transparent mechanism for addressing grievances will contribute to a more equitable and reliable banking experience for everyone.

The Bank and Other Financial Institutions Act (BOFIA) outlines penalties and enforcement mechanisms for financial institutions and individuals who fail to adhere to its provisions, including those related to cybersecurity breaches and fraud. Sending fake alerts is a criminal offense, punishable by law, as it involves various forms of fraud and cybercrime that are illegal in Nigeria.

The bank’s liability is influenced by factors such as its failure to implement adequate security measures to protect customers account exposed by operational errors or AI malfunctioning. Consumers of financial services have the option to pursue legal action by filing a civil suit for damages, restraining order and cost of the action or making a criminal complaint for fines or imprisonment through the High Court or the Federal Competition and Consumer Protection Commission.

Despite the presence of frameworks such as BOFIA and various consumer protection laws designed to safeguard financial consumers, there remains a significant gap in addressing issues related to fake alerts and fraudulent transactions originating from automated banking systems. Legal precedents have shown that banks can be held accountable for errors and inaccuracies in their financial systems. For example, numerous court rulings have established that banks are responsible for correcting unauthorised transactions.

These cases highlight the need for banks to ensure the accuracy and reliability of their automated systems to avoid legal consequences and maintain customer trust. However, current Nigerian consumer protection laws do not specifically address the problem of fake alerts resulting from automated systems. This regulatory gap leaves consumers exposed to the negative impacts of such errors without clear avenues for recourse.

In contrast, the U.S. Electronic Fund Transfer Act (EFTA) offers explicit provisions for holding banks accountable for errors, including those caused by system glitches and fraudulent transactions. The EFTA establishes procedures for reporting errors, resolving disputes, and protecting consumer rights, providing a more comprehensive framework for defending customers against the impacts of fake alerts. To reduce customer frustration and improve consumer protection, the Nigerian government should consider adopting similar legislation to address these issues more effectively.
Concluded.
Aigbokhan is the Co-Founder of FOI Counsel and Kokoye is a national service staff of the firm.