AN ANALYSIS ON THE LEGAL PROTECTION OF A CUSTOMER IN ELECTRONIC BANKING. by Jesse Temba. Introduction.

The thrust of this article is to examine the legal protection of customers in electronic banking in Tanzania. The banks invested significantly in Information Communication Technology (ICT) by introducing different forms of electronic banking in Tanzania to facilitate electronic cash movements such as automatic in-line cashier terminal and centralized databaseprocessing facilities.1 Currently, ICT owes the task of supporting and raising service efficiency in all businesses. Banking industry is one of the businesses that have exploited and used ICT to its banking transactions and expand bank service opportunities to its customers. It conforms to the needs of modern society that the internet plays an important role in peoples daily life .ICT has become one of the tools that many customers can access to the internet banking services easily and quickly.2 However, security issues presents a pressing concern to customers, this is because the arguments
Mollel, A., & Lukumay, Z. (2008). Electronic Transactions and the Law of Evidence in Tanzania. Iringa: Peramiho Printing Press, p 5 2 Kasemsan, K., & Hunngam, N. (2010). Internet Banking Security Guideline Model for Banking in Thailand. p.1.Available at http:// www.ibimapublishing.com/journals/CIBIMA /CIMIMA/html, (Accessed on 15-22012)
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by researchers and writers depict that there are legal issues of which customers are not assured legal security against fraud and other related offences given lack of legal framework that regulate this area in Tanzania.3 The writer appreciates the fact that electronic banking is a new phenomenon in Tanzania which has been brought by the rampant advancement of science and technology. Therefore, the article includes a general diagnosis of the entire concept of a customer in electronic banking and together with its general historical evolution. The article encompasses the general overview of the legal aspect of banker-customer relationship in electronic banking. Moreover customers are prone to encounter legal challenges that emanates from electronic banking to customers. These prompt a full scrutiny of the reasons which subvert the Tanzania legal framework to follow short as far as affording a protection to a customer in electronic banking is concerned. In this regards, it goes without a saying, doing research concerning issues brought by ICT particular electronic banking is bit complex if not a challenging task. Therefore this will in some respect involves the use of material beyond judicial and statutory provisions to determine pertinent issues from generality to specificity. It implies, from generality entails
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Mambi, A. J. (2010). ICT law book, Dar es Salaam: Mkuki and Nyota Publishers Ltd, ,pp126-128

examining the whole legal framework regulating electronic banking and to specificity concentrating on the aspect of a customer legal protection in electronic banking. Historically Electronic banking was firstly introduced in the United States of America (USA) in the early of 1990s and it has since extended globally gradually.4 Since the mid-1990 the Civil Service Department of Tanzania has initiated a series of measures aimed at transformation to recognize and promote the use ICT.5 The development of ICT has led to the paradigm shift in the banking sector.ICT has revolutionized the banking sector making transactions faster and more convenient. Tanzanian banking sector has made a noteworthy progress in deployment of ICT by introducing a banking service known electronic banking. Banks like Cooperative Rural Development Bank (CRDB), National Bank of Commerce (NBC) Bank, National Microfinance Bank (NMB) & Tanzania Postal Bank have invested significantly in ICT by introducing different forms of electronic banking to facilitate electronic cash movement.6 Such banks

Radhakrishna, G. (2009). Liability issues in internet banking in Malasysia.p1.Available at http://www.ibimapublishing.com/journals/ (Accessed on 14-3-2012) 5 Mollel & Lukumay (2008) p5 6 Abdallah, A. (2011). The impact of ICT revolution in Tanzanias legal System: A critical analysis of cybercrimes and computer forensic evidence. Unpublished Master Thesis, Open University of Tanzania. pp 28-29.

have cash machines called Automated Teller Machines (ATM) with 24-hour access for the customers to cash and perform other basic banking services.7 Apart from introducing ATMs several banks have introduced electronic cash management proprietary software that links the customers computer to the Banks financial system (Pc Banking).8 However, while electronic banking is taking place the law has been slow in protecting customers in electronic banking. In addition, our laws have not incorporated tools of effecting electronic transactions. The existing laws facilitate paper based transactions, which apparently are not applicable to technological changes that are currently taking place in Tanzania.9 In, 2006, there was amendment of the Banking and Financial Institution Act but still this still these amendments incorporated features that promote offline mode of transactions, in other word it, promotes paper based transactions as a result it does not pave for recognition of electronic transactions.10

Available at http://www,ict.into/osg/spu/cybersecurity // contribution/Tanzania-ulanga-paper pdf. (Accessed on 0404 -2012) 7 Mollel, & Lukumay, (2008) pp 5-6 8 Bwana, A, J. (2003). Electronic banking and law in Tanzania: Approaches to its regulation, Tanzania lawyer. p.2 9 Abdallah, A.(2011) p 29 10 Mambi, A, J. (2010) pp 128-129

It was very promising for customers in the year 2010 when the Electronic and Postal Communication Act,11 was enacted but despite the enactment of this law it does not afford exhaustive legal protection of customers in electronic banking as it does not provide for electronic transactions. Opinion of the writer The writer is of the opinion that the current legal framework in Tanzania is inadequate as to afford legal protection of customers in electronic banking. Argumentatively, most of the pieces of legislation in Tanzania regulating bank business are offline oriented and therefore Tanzania has yet to have cyber laws which regulate electronic banking. This fact is revealed by the survey conducted at the office of chief Parliament Draftsman. According to this survey Tanzania does not have laws that recognize electronic transaction.12 Significance of the article This article is of paramount importance because it will raise awareness to the legislators and the customers on the shortcomings of law as regards to customers protection in electronic banking and the associated legal and financial risks that are likely to be encountered by the customer in
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Act No. 3/2010 Mollel, & Lukumay, (2008) .p 9

electronic banking. Also the article will be vital to students who are studying banking law and e-commerce law in expanding their knowledge on electronic banking. This article will be of great assistance to those who will research on other aspects concerning electronic banking. The

recommendation of this article will bring tremendous changes if they will be implemented as far as legal protection of customers in electronic banking is concerned. Wisdoms from other intellectuals. Until now literature on legal protection of customers in electronic banking is scarce. However, given the nature of the problem and the complexity of issues underpinning this area, this section reviews the few existing pieces of literature from Tanzania and selected foreign jurisdictions to define the nature and dimension of the problem. The latter countries include India, Malaysia, and United Kingdom (UK). The reasons for selection of these countries are first and foremost, that these countries share a similar legal system and tradition with Tanzania; the common law legal system. Besides, they are also the pioneers in addressing the problem dealt with in this article.

Bwana, J.13 has lengthily discussed the implementation of electronic banking in Tanzania. The work of this author is precious as it includes the risks that a customer is likely to encounter in electronic banking as a result of inappropriate legal framework. The author has also classified the relationship between banks and customers in electronic banking in Tanzania as being purely on contractual basis. However due to new features of electronic banking there is a need to come up with a piece of legislation to govern this specific area of electronic banking which subjects customers into security risks.

Mollel, A.14argues that information communication technology is more and more gaining magnitude in almost all sectors of national development in developing countries. Electronic transactions are replacing the old and traditional methods of transacting in all walks of life. However, the fullfledged application of information communication technology for

development in most of these countries is seriously hindered by lack of comprehensive legal and regulatory framework for the subject. The author

Bwana (2003) pp 1-10 Mollel, A. (1996).The legal and regulatory framework for ICT in developing countries: Case study of ICT and the law of evidence in Tanzania.pp1-16. Available at http://cs.joensuu.fi/ipid2008/abstracts/Mollel Andrew_ICT4D PAPER.pdf ( Accessed on 1-2-2011)
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points out that these challenges spin around integrity, authenticity and security of electronic records. Mambi, A, J.15 has discussed extensively on Information Communication Technology in Tanzania. As regards to electronic banking, he is of the view that there is a lack of certainty on electronic banking in Tanzania and possibly the region of East African Community whereby electronic banking is growing explosively. As a result of inappropriate legal framework electronic banking may expose a customer to legal risks on question of privacy, cyber crimes and other related electronic financial result. The current legal framework on financial and other related transactions do not suit electronic transactions hence a barrier to e-commerce development. The laws do not accommodate online transactions or payment in cyberspace rather than off-line transactions. Mollel, A. & Lukumay, Z.16 have posed a strong discussion on electronic transactions and the law of evidence in Tanzania, and have stressed that the current legal system does not adequately address the impact of ICT on rules of evidence in Tanzania. The writers have found that the banking sector has made remarkable progress in deployment of ICT by introducing

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Mambi, (2010) pp 120-132 Mollel & Lukumay (2008) pp 5-12

electronic banking but despite such progress a fully fledged deployment of the benefit of ICT in Tanzania has not yet been reached. This is because Tanzania has yet to have cyber laws. Basle Committee on Banking Supervision17 found that electronic banking and electronic money activities, rights and obligations of customers to such transactions are, in some cases, uncertain. For example, application of some consumer protection rules to electronic banking and electronic money activities in some countries may not be clear because of the lack of a proper law. Legal risk arises from violations of, or nonconformity with laws, rules, regulations, or prescribed practices, or when the legal rights and obligations of parties to a transaction are not well established. In addition, legal risk may arise from uncertainty about the validity of some agreements formed via electronic media. Schaechter, A,18 presents a general overview on issues in electronic banking. He laments that there are two other important sources of legal risk to customers. First, there can be uncertainty; about which legislation applies to electronic banking transactions; the legislation of the jurisdiction

Basle Committee on Banking Supervision.(1998). Risk management for electronic banking and electronic money activities,BS/97/122, pp 1-9.Available at http://www.bis.org/publ/bcbs35.pgf. Accessed on 5-52012. 18 Schaechter,A.(2002).Issues in electronic banking: An overview. pp 10-20. Available at http://www.imf.org/external/pubs/ft/.../2002/pdf06.pdf . (Accessed on 17-4-2012)

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in which the (virtual) bank is licensed or in which the services are offered. This is especially true when electronic banking has a cross-border nature where different legislations might conflict with each other. And secondly as a consequence of this, also enforcement can be difficult. Moreover, enforcement of certain emerging areas of law is uncertain, for example laws related to electronic contracts and digital signatures. This can lead to violations of customers protection laws, including data collection and privacy, and regulations for soliciting could be important issues. In other word the author is of the view that customers can only be protected clearly by a system of law. Lloyd, J,19 discusses electronic banking as part of electronic commerce due to the fact that electronic banking enhances consumer confidence in electronic commerce. He further stated that consumers in electronic banking are afforded legal protection by a proper legislation known as the Consumer Credit Act.20 However, this legal protection is afforded only where a consumer is resident in United Kingdom. The author implies that a customer in electronic banking can be protected in his/ her respective

Lloyds, J. (2008). Information technology law,5th ed. United States of America: Oxford University Press, pp 506-507 20 1947.

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countries if in his/her country there is a piece of legislation protecting him or her in electronic banking.

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