Two rulings against (unnamed) banks recorded in the latest annual report of the Ombudsman for Banking Services show that customers often fall through the cracks of banks’ automated systems, especially when it comes to the repayment of debt.
In the first case, the bank clearly transgressed consumer-protection laws governing credit; in the second, the ambiguous wording of the terms and conditions of a housing loan resulted in higher costs for the borrower.
Case 1: ‘In duplum’ and prescription
Mr A lodged a complaint with the ombudsman on the grounds of reckless lending, but it turned out the real issue was that his loan had sat idle on the bank’s books for more than three years accumulating interest without any intervention by the bank to prevent the balance from sky-rocketing to a shocking level.
According to Mr A, the bank approved a revolving credit agreement of R110 000 in 2013.
However, soon after the loan was approved, he lost his job. Although unable to keep up his repayments, the bank kept the account open.
The ombud found that any case Mr A had regarding reckless lending had prescribed – in other words, he had waited too long after being granted the loan for his complaint to be valid.
According to the National Credit Act (NCA), such a complaint “may not be referred or made to the National Consumer Tribunal or to a consumer court more than three years after the act or omission that is the cause of the complaint.”
However, the ombud found that Mr A had other valid claims against the bank. First, on inspecting the account statement, it was clear that the “in duplum” rule had been breached by the bank.
The report states: “At the time the complainant lodged the complaint, the outstanding balance on the loan was R536 919. ‘In duplum’ provides that interest on a debt will cease to run where the total amount of arrear interest has accrued to an amount equal to the outstanding principal indebtedness. A loan of R110 000 was granted, which means the outstanding balance cannot exceed R220 000.”
But that’s not all. The ombud found during its investigation that Mr A had made no repayments for more than three years, but the bank had not taken any action against him in all that time.
Therefore, the debt had prescribed. As above regarding the prescription of Mr A’s reckless lending complaint, a party’s claim to a debt owed (in most cases) prescribes after three years unless action is taken to retrieve the debt.
The ombud’s report states: “As there was no acknowledgement of debt from the complainant’s side and no legal enforcement proceedings instituted by the bank in the past three years, our office advised the bank that the debt had prescribed and they could no longer collect the debt.”
The bank agreed to write off the entire amount and closed the account.
“It is important for banks to be mindful of their obligations in respect of the NCA’s provisions regarding ‘in duplum’ and prescription,” the ombud noted in the report.
Case 2: Cash deposit charges
Mr B complained to the ombud about the high fees charged on his home loan account. At issue was a misunderstanding about the conditions under which the bank charged fees for cash deposits.
The bank had charged fees on Mr B’s cash deposits at an ATM, but Mr B argued that the bank’s pricing guide stated that fees would be charged only when payments were made at a branch.
The ombud’s office asked the bank for the home loan agreement and pricing guide applicable to Mr B’s account. The guide stated: “We charge a cash deposit fee for any cash deposit into your home loan account at a branch.”
Mr B said he had made his deposits at an ATM that was not at a branch. The bank maintained that the deposits were cash deposits made at an ATM, and the fee was, therefore, applicable.
The ombud submitted to the bank that its pricing guide appeared to be vague or misleading regarding cash deposits made at a branch. In this instance, the deposits were made at an ATM not located at any of the bank’s branches.
The bank agreed to reverse all cash deposit fees charged to the account, and the matter was referred to the bank’s home loans department to amend the wording of the pricing guide.
“The relationship between the bank and customer is purely contractual in nature. As such, the agreements entered into with the bank, as well as the applicable pricing guides, need to clearly stipulate the terms and conditions and cannot be vague or misleading,” the ombud noted.