Overview

The 2004 revision of the Code has, commendably, produced a document that is set out in a more logical format than the 2000 Code, making it easier to access inter-related topics.

There are some laudable additions to the Code, such as the undertaking to accommodate disabled clients and the section regarding internal dispute resolution. We do note that several of our previous suggestions have been implemented, for which we commend the Banking Council.

A.  Reviewing of the Code
It is unsatisfactory that the Banking Council alone has the power to determine the contents of the SA Code and review it. The body that reviews the Code should be composed of a broader spectrum of interests. The Financial Advisory and Intermediary Services Act states at 15(1)(a) that: 

"The registrar must, after consultation with the Advisory Committee and with representative bodies of the financial services industry and client and consumer bodies determined by the Advisory Committee, draft a code of conduct for authorised financial services providers."

In England, the British Code Standards Board (BCSB) reviews the Code and ensures compliance with its provisions. The SA Code should be subject to review by a similar body to the BCSB, having the capacity to give the review the time and attention that it needs. 

B. The Code imposes responsibilities on customers 
Although the stated purpose of the SA Code is to provide valuable safeguards for customers, what strikes the first-time reader of the Code is the number of responsibilities and duties ("expectations") the SA Code places on bank customers. Some of these imposed duties are discussed below. It is debatable whether it is appropriate to include such expectations in a document described as a code, which is defined as:

"A set of conventional principles and expectations that are considered binding on any person who is a member of a particular group."

UltraLingua English Dictionary

The inclusion of "expectations" makes the document resembles a pact or contractual agreement, with mutual rights and obligations. The heading to section 4.11, which reads "What we expect from you", and the following extract from 4.1.1 reinforce this impression:
"We will market and approve credit responsibly (based on the information you supply to us) to match your borrowing requirements and capabilities and supply you with suitable products, in an attempt to ensure that you are not extended beyond your financial means. However, our ability to do so depends on your compliance with our expectations, of you set out in 4.11.4 regarding your financial affairs. "

The contradiction that this approach presents is that the document expressly states that its provisions may not be used in ascertaining the legal relationship between a client and the bank, implying that it does not create additional implied contractual terms to that relationship. Furthermore, the independent surveys commissioned by the OBS have shown that a comparatively low percentage of bank customers have been made aware of the existence of the Code. In the absence of the banks being able to show that customers have been made aware of their obligations and that they have accepted them, there is no basis for holding customers to them. The very nature of a code presupposes a voluntary acceptance of the principles contained in it. 

C. The lessening of the banks' obligations 
The revised Code lessens the liability of the banks in several critical respects:

  • Section 2.9: "…. Provide reliable banking and payment systems services and take reasonable care to make these services safe and secure [Previously the standard was to …"have safe, secure"[Previously the standard was to "have safe, secure and reliable banking and payment systems services"].
  • Section 4.9.3: "If you act negligently or without reasonable care… and this has caused or contributed to losses, you may be liable" [Previously it was necessary for a bank to prove gross negligence].
  • Section 4.9.4: "Where a credit card transaction is disputed, we accept the burden of proving fraud or negligence or that you have received your card."[Previously, all card transactions, not just credit card transactions, were covered by a similar provision.]
D. The introduction of more onerous obligations on customers 
The wording of sections 4.9.3 and 4.9.4 implies that the customer is now liable for losses occasioned by acting "without reasonable care", as opposed to the former requirement of gross negligence. 

E. Nature of Code: not binding 
It is of concern to this office that the provisions of the SA Code are not binding on the banks when a complaint is lodged with this office. In contrast, clause 10.3 of the Australian Code makes its provisions legally binding. 

F. Failure to comply with the Code: no penalty? 
This office has no powers to penalize banks that have failed to comply with the Code where a causal link between such behaviour and the customer's loss cannot be shown or the complaint falls outside this office's jurisdiction. This office believes that a body should be established to ensure that there is substantial compliance with the Code. See our comments on the British Code Standards Board above. 

G. Provisions of the Code to override conflicting terms in bank contracts 
Where a conflict arises between the provisions of the Code and the terms and conditions of any contract drafted by a bank, the provisions of the Code must take precedence. It is not certain that this principle is embodied in the provision: "ensure that all our services and products comply with this Code, even if they have their own terms and conditions" (2.2). 

H. Sections of the Code selected for specific comment:  

1. Privacy and personal information:  

a) The use of customers' personal information for marketing purposes 
The clauses that appear under the heading "Advertising and Marketing" in section 8 of the current UK Code are indicated below. The style of this wording is to be preferred to that used in the revised Code.

"We will take care when sending marketing material to you, particularly if it relates to loans or overdrafts, or if you are under 18. Unless you specifically give your consent or ask us to, we will not pass your name and address to any company, including other companies in our group, for marketing purposes. We may tell you about another company's services or products, and if you say you are interested, that company may contact you directly. When you become a customer, we will give you the opportunity to say that you do not want to receive marketing approaches from us. At least once every three years, we will remind you that you can ask us not to contact you for marketing purposes. "

b) Confidentiality 
Section 3.6 the Code states that :

"We will treat all your personal information as private and confidential (even when you are no longer a customer). Except as set out in 3.7.1. below, we will not disclose any information about your accounts or your personal details to anyone, including other companies in our group, other than in four exceptional cases permitted by law. These are :

  • where we are legally compelled to do so;
  • where it is in the public interest to disclose;
  • where our interests require disclosure; (This will not be used as a reason for disclosing information about you or your accounts [including your name and address] to anyone else including other companies in our group for marketing purposes.)
  • where disclosure is made at your request or with your written consent. If you make use of electronic banking facilities like telephone banking, and the telephone calls are recorded, consent to disclosure might be recorded verbally."
c) Exceptions where confidentiality may be breached by a bank 
One of the four exceptional cases "permitted by law" that allow a bank to breach privacy rights, that of "where our interests require disclosure", is potentially misleading. It is not appropriate to discuss the broad issues pertaining to banking privacy in this document. All that need be said here is that the exception regarding breach of privacy "where our interests require disclosure" was meant by the court in the case where these four exceptions were first mentioned, to be very narrowly applied. The emphasis is on "require" which should not be interpreted as "if it is in our interests to give". Bankers and at least one academic have already wrongly interpreted this exception. An example as to when the exception should apply: If a bank wished to sue a customer for amounts due and payable on an overdraft, the bank would have to breach a customer's right to confidentiality to issue summons as the name and address of the customer as well as the amount owed must appear on the summons. The third exception should be removed. This would ensure that the Code is not misleading in this area and properly discloses to customers when their rights to confidentiality may be breached. 

d) Other protections of confidentiality 
It is regrettable that the various protections provided by the current UK Code under section 13 "Confidentiality" regarding credit reference agencies, banker's references and data protection were not also be included in the SA Code. These provisions provide valuable privacy protection to customers. 

2. Placing a duty on the customer 
The Code should not impose duties on customers that are not fair or that are greater than the law imposes. 

a) Section 4.7.2 bullet point 5: cheques lost or damaged while in banks' possession:
In this section, the Code states that a bank is not responsible if the bank has lost or damaged a payment instrument and the customer has the duty of obtaining a replacement from the issuer The Code contains no undertaking by the banks to take reasonable care of cheques given into their care. The banking industry succeeded in amending the Bills of Exchange Act so that certain legal entities now have a duty to take care of their cheque books. The banks should similarly have undertaken in the Code to take good care of customers' cheques that are in their care [the clearinghouse is owned by the major banks and operated for the benefit of all the banks. The courier services are the agents of either the clearinghouse or of the banks involved in a particular transaction]. This provision of the Code seems to be an attempt to entrench the bank practice of interpreting section 67 of the Bills of Exchange Act in a particular way. The standard reply of banks to customers whose cheques have been lost by the banks is to inform the customer that in terms of the Bills of Exchange Act, the customer is required to obtain a replacement from the drawer and that no liability falls on the banks. Section 67 merely gives the person who has lost a cheque the right to obtain a replacement from the drawer. It does not require such action and it does not exonerate any other party who may have been responsible for the loss, from liability. The agency situation and the "complexities" of the cheque clearing system are insufficient reasons to override the issues of fairness in this matter. If bank systems are responsible for cheque loss, theft or damage, the banks must accept responsibility. The comments of the Australian and UK Banking Ombudsmen on this subject are recorded in the SA Banking Ombudsman's first report on pages 14 and 15. The current UK and Australian Codes contain no provision similar to this section of the Revised Code. 

b) Section 4.3.1: mortgage loans: 
Section 4.3.1 does not provide 'valuable safeguards' to customers on the subject of the assessment of security when mortgage loans are granted. It contains only a warning to customers that a bank's appraisal of a property is solely to enable the bank to assess the value of the security and cannot be relied upon by customers to establish market value or whether a purchase price is fair. The Code places the responsibility for assurance regarding a property's quality on the customer who should obtain information from 'the proper experts'. The Code states at section 4.3.2 that the customer must not even expect a bank assessor to physically inspect the property. The Code should express some undertaking to customers that the assessors of property will have certain appropriate qualifications and will in fact visit a property to inspect it. The assessor's report should be made available to the customer. The bank assessor who inspects a building in progress has a greater responsibility to ensure the quality is acceptable, to protect both the bank and the customer. If a higher charge for such an assessment were to be made, this would be a justifiable expense. The buyer could elect to use such a service. Buildings that do not have the NHBRC warranty should be subject to extra precautions. 

3. Suretyships 
The revised Code fails to provide valuable safeguards to customers in the following areas: 

a) Unlimited suretyships 
The UK Code states firstly that no bank will take an unlimited suretyship or guarantee. The SA Code makes no such provision. Unlimited suretyships are unnecessary and unfair in many cases. The Code should clearly state that unlimited suretyships will not be taken except where a limited suretyship would not provide adequate security to the bank. The Code should state that a surety has a right to ask that a suretyship be limited. 

b) Members and directors of businesses 
People who stand surety for a business while they are involved with it should be allowed to cancel the suretyship under certain conditions acceptable to the bank when they no longer have an interest in the legal entity or business. 

c) Information to surety: informed consent 
i) Information on the extent and nature of liability 
The UK Code states that a bank will inform a surety exactly what the liability under the suretyship will be. The SA Code should contain this provision as a safeguard to ensure that customers understand the seriousness of the undertaking they have made. The bank should clearly explain the implications of standing surety: that the surety may lose all his or her property and risk insolvency. 
ii) Information on the risk to which a suretyship exposes the surety 

The UK Code states that when a customer wants the bank to accept security in the form of a guarantee from another person, the bank will require its customer's permission to reveal to the surety or his legal advisor confidential information on his financial situation. This allows the bank to be pro-active and place relevant information before the prospective surety so that the surety makes an informed decision, knowing the risk he or she is taking. The SA Code at 4.2 states that the bank will inform its customer or the surety that the surety may in law require the bank to disclose confidential information on his finances. This provides no valuable safeguards as it merely states the law. The Code should replace this provision with the one that occurs in the UK Code. 

d) Relationship debt: legal advice for certain sureties 
The SA Code should state that banks would not accept a suretyship from spouses or partners of customers unless an independent legal advisor has advised the surety. This will protect the banks and customers in the so-called 'sexually-transmitted debt' or 'emotionally transmitted debt' situation. South African common law may support such a requirement. 

e) Principal debtor to be pursued first 
Banks should undertake to take all reasonable steps possible to pursue the principal debtor before holding the surety responsible, even in cases where the surety is stated to be co-principal debtor. 

f) Credit worthiness of the principal debtor 
More effort should go into assessing the creditworthiness of the principal debtor or the viability of the proposed venture before credit is offered and a surety required. This relates to responsible credit. 

4. Information given to customers: risk 
Is the risk of loss to which the product or service exposes the customer, a "key feature" of that product or service? (3.2) This office believes that customers must be informed of any risks of loss to which a bank product or service may expose a customer and for which the customer will be held responsible by a bank. This is important information for customers in making a decision as to whether to purchase the product or service. Knowledge of the risk involved in the product will allow the customer to take steps to reduce the risk to him or herself. The extent of such risk must be fully explained to the customer who should consent to the risk in writing. The Code should contain a provision ensuring this. Whether the banks wish to explain the risk involved in a product or service to customers when 'key features' of the service are discussed or not, this information must nevertheless be brought to the customer's attention before the product or service is purchased. The customer should accept the risk in writing. 

5. ATMs and an Electronic Funds Transfer Code 
The SA Code, as mentioned above, contains some useful provisions to protect customers in the event of loss involving an ATM card and PIN. Areas of concern to this office include whether banks are doing enough to warn customers of risks associated with using certain ATM machines, site security and Internet access to accounts. The current UK Code contains a provision that limits customers' liability for losses on an electronic card. This protects customers better than the provisions of the SA Code. The SA banking industry should seriously consider implementing a scheme similar to that contained in the current UK and Australian Codes. In Australia, there is an Electronic Funds Transfer Code to regulate problems arising in this area of electronic banking. This comprehensive document provides valuable guidelines in this area of banking. South African banks should devise a similar document.