10 March 2022

Consumer Rights Day 15 March - Banking Ombud

Submitted by Lola Lazarus

Like most consumers worldwide, South African consumers are offered a wide range of protection in the form of legislated consumer rights. These rights have been developed and applied over the years into the framework that we know today. “Over the years, this has been vital; particularly in the financial services sector,” says Reana Steyn, the Ombudsman for Banking Services. “Despite these rights, over the past few years, we have seen that there are major corporates and scam artists that are very willing to take advantage of the public without a second thought.”

World Consumer Rights Day (WCRD) falls on 15 March and was established with the purpose to promote the basic rights of consumers. As the OBS, one of our strategic objectives is to highlight the importance of consumer rights, especially in the banking sector and to provide support to programmes that aim to educate consumers, and bank customers about the various rights they have. These consumer rights can be found in the Code of Banking Practice, the National Credit Act, the Financial Sector Regulation Act as well as the Consumer Protection Act, to name a few.

According to Steyn, the OBS regularly deals with matters where some consumers appear unaware of their rights, and obligations, when they deal with the bank. Sometimes these misunderstandings result in a dispute lodged with the office after all attempts to reach a settlement between the parties have failed.

What rights do consumers have?

All bank customers have a right to expect to be treated fairly, reasonably and ethically by their bank. This right is reinforced by the banks undertaking not to unfairly discriminate any customer on grounds such as marital status, gender, age or race in the provision of banking services or in the quality (and terms) of the services that are offered to the consumer.

“However, it is important to note that not all discrimination or is unfair,” advised Steyn. Banks have special products or service offerings that are specifically designed for members of a target market group.  A good example of this would a student loan offered by banks where the repayment terms are considerably more favourable than a personal loan.

Consumers right to apply for credit

In terms of the National Credit Act (the “Act”), all adult natural persons, and every juristic person or association of persons, has the right to apply for credit.

However, the Act also recognises the banks’ right to refuse to enter into an agreement with a consumer provided that the reasons for the refusal are reasonable and consistent with the law and the banks’ risk appetite. For example, the Bank would be within their right to decline an application for credit based on lack of affordability.

Right to negotiate for a more favourable interest rate.

The OBS has also received complaints from consumers who dispute the interest rate charged on their loan accounts and feel that it is too high. Often, a challenge faced in these matters is that the consumers lodge their complaints after they have signed acceptance of the terms and conditions of their agreements with the credit provider. “Unfortunately, unless the interest rate applied by the bank is not in line with the prescribed rate per the NCA, the consumer will be bound by the agreement and the OBS does not have the mandate to force the bank to renegotiate a better, more acceptable, rate for the customer, simply because the terms no longer suit them,” advised Steyn.

Steyn reminded consumers that they have right to negotiate with credit providers, and preferably shop around, especially if the interest rate that is being offered is not in line with what the consumer deems fair. “Consumers do not have to accept the first offer they receive from credit providers. Before acceptance of the coffer by the consumer, there is no legally binding agreement. Therefore, consumers have a right to consider and compare the offer made considering the term, interest rate offered, the instalment payable and the total amount repayable”,” said Steyn. She added that after considering the full terms of the agreement, consumers have the right to refuse the interest rate that has been offered and negotiate for a better rate.  “Furthermore, consumers are also not forced to accept the amount initially requested and offered by a credit provider. They have the right to request for the amount to be reduced and be in line with what they believe will be affordable for their pockets,” said Steyn.  

Consumer Rights regarding “set off” as per s124 of the National Credit Act

Previously, it was acceptable for banks, without prior notice, to transfer monies out of the customer’s account that was in credit (such as a cheque account) and pay the funds into an account that was in default (such as a personal loan account or credit card), with the aim to reduce the customer’s indebtedness to the bank. This principle is referred to as “set off.”

Section 124 of the National Credit Act now regulates set off in respect of credit agreements regulated by the NCA. The aim of Section 124 is to safeguard the rights of consumers in the set off process by giving the consumer a say in the way in which the set off is applied.

The aim of Section 124 is to prevent the banks from having the autonomy to decide to debit the consumer’s account with an amount the bank unilaterally deems appropriate, without prior consultation with the consumer. Therefore, the current legal position is that for any set off to be lawful, it must be conducted in line with the provisions of Section 124. “This means that the consumer’s written prior authorisation must be obtained, and, in the authorisation, there must be an agreement as to the account to be debited, the amount to be debited as well as the date on which set off will be applied. Lastly, the credit provider/bank is required to provide a notice to the consumer before any set off is made,” advised Steyn.

In recent times, the OBS has noted that some banks may still be applying common law set off in respect of credit agreements falling within the National Credit Act and it is important that consumers know about their rights when it comes to deductions from one account to pay another account, Steyn added.

Right to receive notice prior to the bank closing an account

The issue regarding the closure of bank accounts is currently topical and is receiving a lot of media attention. The OBS is aware of the current class action suit that is being brought against certain banks via the media, but they are not involved in the matter.  

Until a new judgement is handed down by the court, the current legal position is that the banks are allowed to terminate their relationship with consumers. The only requirements are that the bank must provide the consumer with a reasonable notice of the termination (30 days or more depending on the number of accounts that the consumer has with the bank) as well as the reasons for the termination. This position is also regulated within the Conduct Standard for Banks.

The mandate of the OBS extends to protecting consumers against abuse of consumer rights by the banks. In the matters relating to closure or blocking of bank accounts by banks, Steyn explained that these usually involve a customer challenging the bank’s reasons for doing so. One of the most prevalent reasons banks have closed/blocked access to the accounts was that the customer’s account was being used or involved in confirmed criminal activities.

In these matters, the complainants most often request that the OBS assists them with either convincing the bank to unblock their accounts or to get their accounts reopened and have their names removed from the South African Fraud Prevention Services list.

” While the OBS can award compensation for loss or inconvenience caused in some instances, this will only be done if the OBS finds that there was wrongdoing in the manner the bank closed the account. However, the OBS cannot force the bank to unblock an account or to reopen one when the bank insists it no longer wants to do business with a consumer. After all, it is the bank, and not this office, that would have to bear the consequences of being in such a relationship,” said Steyn.

Steyn also advised that there has, on previous occasions, allegations made by consumers that their application for credit were unfairly declined due to their race, age, Steyn confirmed that her office takes these allegations very seriously. According to Steyn, the challenges faced by her office in dealing with such complaints is that there is often lack of evidence to prove that the loan was declined on the basis of the listed prohibited discriminatory grounds. Nonetheless, the OBS calls on all consumers who believe that they were unfairly discriminated against and declined credit or any other banking product or service due to their race or age and have proof to substantiate their allegations, to lodge a complaint with her office for the allegations to be investigated.

Lastly, Steyn reminded consumers that the right to lodge a complaint against a bank it is one of their fundamental consumer rights. This can be done with the OBS which offers a   

Free, Informal, and Speedy alternative dispute resolution service. Consumers can call 0860 800 900 to lodge a complaint.

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CASE STUDIES (F)

It is important that consumers are aware of their rights

Like most consumers worldwide, South African consumers are offered quite a lot of protection in the form of consumer rights. These rights have developed over the years into the framework that we know today. “Over the years, this has been vital; particularly in the financial services sector,” says Reana Steyn, the Ombudsman for Banking Services. “Over the past three years, we have seen that there are major corporates and scam artists that are very willing to take advantage of the public without a second thought.”

World Consumer Rights Day (WCRD) falls on 15 March and was established with the purpose to promote the basic rights of consumers. It is important that consumers know their rights when to comes to their relationship with banks. The OBS has dealt with a number of case studies which highlight these rights. 

Customers Right to Apply for Credit

Ms X applied for a mortgage loan of R710 000 to switch her loan from one credit provider to the bank. The loan was initially declined but later approved on principle by the bank, on condition that a valuation was conducted on the property. 

The property was valued for R500 000 which led to the bank declining the application.

Ms X was not happy with the valuation as it was too little compared to the properties in her street. She requested the bank to re-evaluate the property and re-assess the loan application.

In response to the complaint, the bank advised that the value of R500 000 was considered market related value for the property. The bank decided to decline the application as the valuation of the property was not enough security for the loan that was applied for.

The above case study is based on a factual situation where the consumer’s right to apply for a loan and to be provided with written reasons for declining the application were recognised by the bank. Since the OBS’ findings were that the bank received, considered, and later declined the consumer’s application in line with the relevant applicable provisions of the NCA, no wrongdoing could be established on the part of the bank.

Steyn also advised that there has, on previous occasions, allegations made by consumers that their application for credit were unfairly declined due to their race, age,. Steyn confirmed that her office takes these allegations very seriously. According to Steyn, the challenges faced by her office in dealing with such complaints is that there is often lack of evidence to prove that the loan was declined on the basis of the listed prohibited discriminatory grounds. Nonetheless, the OBS calls on all consumers who believe that they were unfairly discriminated against and declined credit or any other banking product or service due to their race, age, or religion and have proof to substantiate their allegations, to lodge a complaint with her office for the allegations to be investigated.

Set off and the Consumer Rights per s124 of the National Credit Act

Ms Y advised that she approached a bank and requested to reopen her cheque account.

At the time, she had a personal loan at the bank which she was paying off. She approached the bank with the intention to switch her salary to be received in the reopened cheque account.

Ms Y deposited her child’s school fees in the cheque account and later realised that the bank had debited over R3 700 without her prior knowledge nor consent. Another R700 was again debited from her account without her consent. She requested for the bank to refund the amounts, but the bank refused. The matter was then reported to the OBS to investigate.

In its response to our office, the bank confirmed the debit and advised that the reason for the debit was due to the complainant’s personal loans being in arrears and the complainant defaulting on the payment arrangements concluded with her. The bank further maintained that any refund made would result in the arrears on the accounts increasing and because of this, the bank refused to refund.

Upon our investigation, we noted that the bank had applied set off contrary to the provisions of the NCA as the complainant’s consent was never obtained prior to the funds being debited by the bank. The bank conceded that there was wrongdoing on its part and refunded the amounts.

Right to receive notice prior to the bank closing an account

The complainant in this case advised that he had given access to his bank account to his friend who had advised him that he was expecting monies and since he did not have an account, he needed to use the complainant’s account to receive the payment. An amount of R500.00 was then deposited into the complainant’s account.

The following day, the complainant discovered that his account had been blocked by the bank. When he enquired as to the reasons why, the complainant was advised that his account received proceeds of a crime. He explained to the bank the circumstances that led to him providing the third party with access to his account, but the bank maintained that it no longer wanted to conduct business with him as the relationship of trust had been broken.

In this matter, it was not in dispute that the complainant had handed over the use of his account to a third party and the account was then used as a vehicle to defraud a member of the public. Therefore, even though our investigation as the OBS did not conclude that the complainant was involved in the fraud, we found no wrongdoing by the bank in its decision to block the account and terminate its relationship with the complainant.

Furthermore, there was no obligation on the bank to provide the complainant with a prior notice prior to closing the account due to the fraud and the banks obligation to ensure that the account is blocked to prevent further fraudulent activities. 

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How to get help from the Ombudsman for Banking Services during the lockdown.

The OBS has taken stringent measures to protect both our employees and complainants.

During lockdown, the OBS staff will be working remotely from home. However, the office is fully operational from 8am to 16:30pm, on Mondays and Wednesdays. When the office is closed, complainants cannot visit the OBS premises.

OBS staff are available to assist with enquiries and we encourage complainants to log complaints through our online and telephonic services. Complainants can lodge a complaint in one of the following ways:

Complainants who have already lodged a complaint  may track their  complaint online by clicking on  the following link: https://www.obssa.co.za/track-a-complaint/. Alternatively, they can call the office to speak to our staff on 0860 800 900.

How to complain

“It is important that the proper protocol is followed when lodging a complaint. A formal, written complaint can be lodged directly with your bank's dispute resolution department. During this process, it is important to ask for a complaint reference number from your bank. Complainants also need to allow the bank 20 working days in to respond to your complaint. Finally, complainants need to obtain a written response from their bank,” says Steyn.

Alternatively, consumers can contact the office of the Ombudsman for Banking Services for free assistance if they experience any banking problems or would like us to assist them with lodging a complaint against their bank.

DISTRIBUTED ON BEHALF OF THE OMBUDSMAN FOR BANKING SERVICES 

BY LOLA LAZARUS OF BULLION PR & COMMUNICATION
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