A sharp rise in thefts and forgeries of cash cards, or ATM cards, and the resultant loss of cash from deposits has become a serious problem. Last year there were 3,448 ATM card thefts and forgeries, causing losses worth some 2.4 billion, yen according to the National Police Agency.

To protect depositors from such crimes, the Liberal Democratic Party and its coalition partner New Komeito introduced a bill in the Lower House on June 21. The Upper House passed it into law on Aug. 3. Due to take effect on Feb. 10, 2006, the law will be a boon to the public because ATM cards are indispensable in daily life today.

Even before the law is enforced, the public is likely to receive the same benefits stipulated under the law because it calls on financial institutions to give utmost consideration to the spirit of the legislation. That means that pertinent measures — compensation for losses — will take effect fairly soon if they haven’t already. The law, however, does not cover losses resulting from the theft of bank books.

The crux of the law is that financial institutions, in principle, are obliged to fully compensate depositors for losses suffered when ATM cards are forged or stolen. If a financial institution can prove that a depositor is at fault, though, the amount of compensation will be reduced in accordance with the degree of fault ascribed to the depositor.

The question of fault concerns how serious depositors have been in guarding their personal identification number (PIN) for their ATM cards. No compensation will be paid if a depositor is found to be “seriously” at fault. Responsibility for proving that a depositor is at fault will lie with financial institutions — a reversal of the traditional practice in which the depositor must prove that he or she is not at fault.

Financial institutions covered by the law include ordinary banks, credit banks (shinyo kinko), credit unions (shinyo kumiai), agricultural and fishing cooperatives and post offices. A supplementary resolution accompanying the law lists examples of serious fault that could preclude compensation. Those cases include letting a third party know the PIN for one’s ATM card, writing the PIN down on one’s ATM card, or letting a third party freely use one’s ATM card.

Compensation will be limited to 75 percent if depositors are found to bear “minor” responsibility. During the Diet deliberations, examples of minor responsibility came out. They include a case in which an ATM card is stolen along with a memo containing one’s PIN or with a document containing information that gives a hint of the PIN. Using one’s birth year and date as a PIN does not immediately constitute fault, but depositors’ failure to change a PIN after receiving repeated requests from financial institutions may constitute fault.

The provision for reducing the amount of compensation or nonpayment of compensation based on the degree of depositors’ fault means that depositors must strive to protect their PINs and handle their ATM cards with care. The best approach is not to link a PIN to one’s birth year and date, or other numbers that appear in ID or other similar documents.

When ATM cards are stolen, it is imperative that depositors notify financial institutions and police as soon as possible. No-fault compensation can be assured only for the amount of losses that accrue up to 30 days before financial institutions are first notified of a missing or lost ATM card. Financial institutions are not legally obligated to compensate losses that occur outside of this period; the law asks only that they give maximum consideration to such losses. It is up to each financial institution how to handle them.

The enactment of the law was prompted by reports in January of ATM card thefts and forgeries at two golf courses. Criminals took advantage of the fact that the PINs used by most of the targeted golfers could also open their lockers. The criminals used security video cameras to get the numbers, stole the ATM cards from the lockers with the cooperation of the golf course manager, and then used a “handy skimmer” machine to read the magnetic information on the cards.

The golfers are believed to have lost at least 300 million yen in total. The incident alarmed the banking industry, whose response was that banks should compensate only the losses resulting from forgeries. Thus it is clear that the new law greatly reduces inconvenience and potential losses for depositors. Even after the law is enacted, the banking industry will be challenged by the need to develop ATM cards and related equipment that can beat the brains of high-tech criminals.

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