Imagine owing more than half-a-million rand on your house, only for the bank to auction it off for just R16 000. Or discovering that someone racked up a quarter-of-a-million rand on your stolen credit card.
For thousands of bank clients across the country, these weren’t hypothetical scenarios but real dilemmas. For these crises, the Ombudsman for Banking Services (OBS), now part of the recently formed National Financial Ombud (NFO), provided a crucial lifeline.
The OBS detailed some of the cases it tackled and resolved in its recently released 2023 annual report. Reana Steyn, the former Ombudsman for Banking Services and now head of the NFO, reflected on the OBS’s 23-year history in the report. She highlighted how banking technology has evolved over time, bringing new challenges for consumers and the OBS to address.
For instance, when the OBS was founded in 2000, chequebooks were still commonly used, although their popularity had peaked in the mid to late 1990s. The OBS team continued to handle cheque disputes well into the 2000s. Additionally, South Africa was an early adopter of ATMs in the late 1980s. By the time the OBS was established, the number of ATMs had surged, expanding the variety of services they offered and increasing the potential for disputes raised by banking customers.
“Though ATM usage has tailed off, in 2023 Capitec and Standard Bank still claimed to operate 7 898 and 5 300 machines respectively across South Africa. The queues at ATM halls on payday still attest to their enduring popularity,” she says.
The arrival of digital technology, the personal computer, broadband, and internet banking, followed by the smartphone revolution again changed the face of banking.
“Today, 22 million South Africans (one in three) use smartphones, and many employ these for banking transactions, eliminating the need to visit their bricks and mortar banks at all,” she adds.
Over the years, the OBS and its staff needed to keep pace with a variety of such sea changes, including the scheme’s own equipment and technologies, the computer literacy of employees and their skillsets, and sheer variety of possible disputes.
“Now, in 2024, with the new banking division already firmly installed within a unified NFO, and a heritage team of experienced, highly skilled (and constantly upskilled) staff at its disposal, South African banks and their customers can rest assured that they’re in good hands,” says Steyn.
The cases handled and resolved by the OBS team in 2023 were as diverse, intriguing, and educational as ever. Here is a small sample of case studies that illustrate this point.
Digital banking: SIM swaps and shady PIN resets
The annual report found that digital banking resulted in the highest number of complaints in 2023. This highlights that fraud – particularly internet banking fraud, phishing, vishing, and push payment fraud – remains the top category of complaints.
In one case, the complainant fell victim to mobile banking fraud through a fraudulent SIM swap on their registered cellphone number. This allowed the fraudster to reset the complainant’s mobile banking application PIN and make unauthorised transactions. The OBS had to determine whether the complainant was negligent or whether the bank’s PIN reset process was insecure.
During the PIN reset, only the complainant’s identity number, cellphone number, and debit card number were required. The OBS found this process unsafe because it did not involve any confidential banking information. There was no evidence that the complainant compromised any confidential information.
The OBS recommended the bank reimburse the complainant for the R30 000 loss. The bank agreed, and the complainant was reimbursed accordingly.
Home, cheap home
Banks must ensure that the principles of fairness and reasonableness are considered in every dealing with a customer.
In this incident, the complainant defaulted on his home loan account, prompting the bank to take legal action. After obtaining a judgment and a warrant of attachment for the property, the court set a reserve price of R426 775. The property was initially sold above this reserve price, but the sale fell through when the buyer could not provide the required guarantees.
The bank requested to have the sale set aside, which the court granted. A new warrant of attachment was issued, but this time without a reserve price. The property was sold for R16 000, leaving the complainant with a shortfall of R589 953.56.
From a fairness standpoint, the OBS deemed it unreasonable for the property to be sold for such a low amount, particularly given the previously set reserve price of R426 775 and an earlier offer that exceeded it.
The OBS recommended that the bank adjust the shortfall, reflecting the original reserve price. The bank accepted this recommendation and wrote off R473 074.35 from the home loan shortfall.
The customer isn’t always right
Customers must be aware that errors on their bank’s part can and do occur, and inconvenience may be experienced within normal bounds.
A consumer deposited R10 000 through a cash-accepting ATM, but because of an error, the money was neither credited to her account nor returned. Frustrated, she not only sought reimbursement but requested a cleansing and forgiveness ceremony for her ancestors, citing stress and trauma. Additionally, she demanded compensation for medical consultations related to the ordeal.
The bank acknowledged the ATM error, credited the R10 000 to her account, and offered a telephonic apology. However, the complainant demanded R60 000 in compensation for the inconvenience.
The OBS investigated and confirmed that the bank had promptly refunded the disputed amount after the ATM malfunction. The OBS explained to the complainant that consequential damage claims are complex and require proof of the bank’s negligence and all elements of delictual liability.
Since the bank credited the disputed amount within a reasonable time, the OBS found no reasonable prospect of a favourable outcome for the complainant. The OBS states that bank errors can happen, and customers are expected to bear the ordinary inconvenience associated with resolving such issues. Only in cases with sufficient merit will compensation for distress and inconvenience be awarded.
Vehicle finance agreements – in the interest of fairness
Banks must ensure due diligence when agreements are signed and that the agreements are prepared based on the terms and conditions discussed between the parties.
The complainant signed a vehicle finance agreement with the bank on 14 September 2022, under the impression that the interest rate would be fixed for the entire loan term. He later discovered that the rate was variable, leading to steadily rising monthly payments. He lodged a complaint, asking the bank to revert the interest rate to the originally promised fixed rate and refund any excess payments. Alternatively, he sought to return the vehicle and cancel the agreement.
The bank pointed out that the complainant signed an agreement acknowledging a variable interest rate, linked to the prime rate and subject to change. Despite the customer’s insistence on a fixed rate, the bank maintained that only a variable rate was offered and accepted. It also mentioned that if the complainant wished to cancel the agreement, he would have to surrender the vehicle, which would be sold. Any shortfall from the sale would be his responsibility.
Upon investigation, the OBS uncovered two agreements. The first had handwritten amendments changing the variable interest rate to a fixed rate, with signatures next to these changes. However, the second agreement showed only a variable rate. A statement from the dealership confirmed that the complainant had requested a fixed rate, but the agreement they received showed a variable rate.
The dealership explained that for the vehicle to be released, a signed contract was necessary and assured the complainant that a new contract with a fixed rate could be re-signed once received from the bank.
The OBS concluded that the complainant was not treated fairly and urged the bank to review the situation. The dealership consented to cancel the initial agreement and settle the vehicle finance account. The bank offered to create a new agreement with the customer at a fixed interest rate, tied to the prime rate.
It takes two to tango
A duty of care rests equally on the bank’s and the account holder’s shoulders.
While shopping, a consumer’s cellphone was stolen. The consumer promptly called the bank to block the account but didn’t mention the theft. By the time the bank acted, R250 000 had been siphoned from the account through an unauthorised transaction.
The consumer’s login details were compromised, because they were accessed using the stolen phone.
The OBS investigated the situation, weighing the responsibilities of both the consumer and the bank. The transaction had triggered a potential fraud alert, prompting the bank’s security team to contact the consumer via email for verification. However, the consumer failed to respond.
Under common law, banks have a duty of care to act on valid customer instructions, while the customer is expected to report issues such as stolen phones promptly.
The OBS noted that banks strive to balance customer service with fraud prevention, aiming to avoid delays that could affect clients negatively. It further highlighted that not all flagged transactions are fraudulent and emphasised the critical role of the consumer in verifying suspicious transactions.
The OBS concluded that the bank had done all it could to prevent the fraud and found no grounds for holding the bank liable.
However, the bank offered a goodwill payment of R125 000, which the OBS deemed fair, given that it was of the view that both the bank and the consumer were negligent.
