I= vate: NOV_08

Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
First Regular Session

House Bill No._5282

Introduced by Rep. ANGELO MARCOS BARBA
24 District, locos Norte

EXPLANATORY NOTE

Credit and debit card terms and conditions in cases of loss or theft of
cards are biased against cardholders.

As it stands today, cardholders are either deemed absolutely liable or
conclusively liable for unauthorized transactions made prior to the reporting
of the loss or theft of the card to the card issuer. While a cardholder can prove
that his or her card was stolen, that his or signature was forged, or that he or
she reported the loss or theft of the card within reasonable time from the
discovery of the loss or theft of the card, card issuers extend no consideration
whatsoever to their cardholders.

Merchant partners, however, are rendered free and harmless from any
liabilities in case of fraudulent and unauthorized transactions even when they
have been remiss in their duty to exercise due diligence in ascertaining the
identity of the cardholder.

This prevailing norm is contrary to the policy of the state to protect
cardholders from unfair practices, scams, and credit card fraud. It is
imperative that Congress provide much needed legislation for the protection
of the cardholders.

This bill seeks to amend certain provisions under Republic Act No. 10870
to ensure that innocent cardholders are not made liable for fraudulent and
unauthorized transactions due to lost or stolen cards.

In view of the foregoing, immediate passage of this bill is earnestly sought.

ANGELO MARCOS BARBA


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
First Regular Session

5282
House Bill No.

Introduced by Rep. ANGELO MARCOS BARBA
24 District, [locos Norte

AN ACT PROTECTING CARDHOLDERS FROM LIABILITY FOR
UNAUTHORIZED TRANSACTIONS IN CASES OF LOSS, FRAUD OR
THEFT OF CREDIT OR DEBIT CARDS, AMENDING FOR THE
PURPOSE REPUBLIC ACT NO. 10870

Be it enacted by the Senate and the House of Representatives of the
Philippines in Congress assembled:

SECTION 1. Section 5 of Republic Act No. 10870 is amended to read as
follows:

“Sec 5. Definition of terms. — As used in this Act, the following terms are
defined as follows:

(s) xx

(t) Card fraud is a wide-ranging term for theft and fraud committed using
credit cards, debit cards, or any other similar payment mechanism as a
fraudulent source of funds. The purpose is to obtain unauthorized funds from
a cardholder’s account. It is also adjunct to identity theft.

(u) Debit card is a plastic payment card that can be used instead of cash
when making purchases. It is similar to a credit card, but unlike a credit card,
the money comes directly from the user's bank account when performing a
transaction.

(v) Reasonable time is defined as so much time as is necessary under the
circumstances for a reasonable prudent and diligent man to do, conveniently,
what the contract or duty requires should be done, having regard for the rights,
and possibility of loss, if any, to the other party.”

SECTION 2. Section 8 of Republic Act No. 10870 is amended to read as
follows:

“Sec. 8. Service Level Agreement — There shall be, in the service level
agreement between the acquiring banks and their partner merchants, a

2 Far East Realty Investment, Inc. v. Court of Appeals, 248 Phil. 497, 503-504 (1988)


provision requiring merchants to perform due diligence to establish the
identity of the cardholders.

THE IDENTITY OF A CARDHOLDER SHALL BE ASCERTAINED BY
REQUIRING THE PRESENTATION OF A VALID IDENTIFICATION CARD,
A COMPARISON OF THE NAME AND SIGNATURE ON THE CREDIT CARD
WITH THE NAME AND SIGNATURE ON THE ID PRESENTED BY THE
CARDHOLDER, OR SOME OTHER MEANS OF AUTHENTICATING THE
IDENTITY OF THE CARDHOLDER.

Nothing in this Act shall preclude a card issuer from verifying or seeking
confirmation with the cardholder any purchase if in their assessment there is
reasonable concern as to the validity of the purchase.”

SECTION 3. A new section designated as Sec. 8-A is hereby inserted to
read as follows:

Sec. 8-A. Liability of Partner Merchants — Merchants shall bear the loss
for failure to observe the due diligence required under Section 8 in
ascertaining the identity of a cardholder in case of unauthorized transactions
due to lost or stolen credit cards and other cases of card fraud.

SECTION 4. Section 11 of Republic Act No. 10870 is amended to read as
follows:

“Sec. 11. Information to be Disclosed. — A credit card issuer shall disclose
to all credit cardholders and potential credit cardholders the following
information:

xxx
(h) xxx

(i) A clear and proper description of the means by which the card issuer
may be notified of the loss or theft of credit and debit card. The telephone
number dedicated solely for reporting loss or theft of credit and debit cards
shall be printed in the terms and conditions and/or billing statement.

G) A reminder to the cardholder in the terms and conditions and/or
billing statement that the failure to report the loss or theft of a credit card
within reasonable time would result to potential liability for unauthorized
transactions.

(i) Any other information that may be required by the BSP.

2x"

SECTION 5. Section 15 of Republic Act No. 10870 is amended to read as
follows:


Sec. 15. Lost or Stolen Card. ~ In case a card is lost or stolen, a cardholder
incurs no liability from the unauthorized use of the card: Provided, That the
cardholder reports the loss or theft of the card within reasonable time:
Provided further, That the cardholder does not act fraudulently: Provided,
finally, That the cardholder has not reported two or more incidents of
unauthorized use in the immediately preceding 12-month period.

SECTION 6. A new section designated as Sec. 15-A is hereby inserted to
read as follows:

Sec. 15-A. Burden of proof. In any action by a card issuer to enforce
liability for the unauthorized use of credit or debit card, the burden of proof is
upon the card issuer to show that the use was authorized or, if the use was
unauthorized, then the burden of proof is upon the card issuer to show that
the conditions set forth in Section 15 have not been met.

SECTION 7. A new section designated as Sec. 15-B is hereby inserted to
read as follows:

Sec. 15-B. Card Security Features — To protect cardholders from
fraudulent and unauthorized transactions, card issuers shall establish card
security features such as but not limited to the following:

a. A PIN-enabled card allowing the cardholder to make purchases
only by keying in a 4 or 6-digit PIN.

b. Transaction notification alerting cardholders of their recent
transactions and charges via SMS, e-mail or other electronic
means.

c. Transaction validation requiring cardholders to validate recent
transactions or charges via SMS, e-mail or other electronic means.

SECTION 8. Repealing Clause. ~ All laws, decrees, executive orders,
memorandum circulars inconsistent with the provisions of this Act are hereby
amended, repealed or modified accordingly.

SECTION 9. Effectivity. — This act shall take effect fifteen (15) days after

its publication in the Official Gazette or in two (2) newspapers of general
circulation.

Approved,