What would you do if a rental company suddenly debited almost R20 000 from your bank account without your permission or any prior notice? Or if you had finally paid off your vehicle finance, only to discover a hefty balloon payment still outstanding?
These are just two examples of the cases resolved by the Ombudsman for Banking Services (OBS), now part of the recently formed National Financial Ombud, in 2023. The OBS highlighted these and other cases in its recently released 2023 annual report.
Read: OBS reports record high complaints in 2023 as it transitions to NFO
Read: Ombudsman’s report unveils banking blunders and customer missteps
Here are some compelling case studies shared in the report that highlight the principles both banks and customers must follow.
Laying a charge
Banks must ensure they adequately assist customers where a valid chargeback right exists against a merchant. Merchants require a separate authorisation from a customer if they want to debit additional charges to a customer’s account.
In this case, the complainant rented a car and returned it damaged. The rental company assured him they would contact him about the repair costs, but a week later, it debited R19 607 from his account without notice. The complainant disputed the charge and sought the bank’s help to reverse it. The bank claimed the dispute was between him and the rental company, arguing he had provided his card details and agreed to be liable for damages.
The OBS investigated, referencing Mastercard rules that require separate authorisation for additional charges. The bank could not provide evidence that the rental company informed the complainant or obtained his consent before debiting his account.
The OBS concluded that the bank should have required the merchant to prove compliance with the rules when the chargeback was raised. Without the complainant’s specific authorisation, the OBS recommended a full refund. The bank accepted the recommendation and refunded the complainant in full.
The loan ranger
Debt under a vehicle finance account may have prescribed under the Prescription Act, but this doesn’t mean you automatically own the vehicle. The bank cannot legally pursue the debt, but it still owns the vehicle and is not obliged to provide the registration certificate until the outstanding balance is fully settled.
In one complaint, the customer stopped payments on their vehicle finance account in August 2018 and requested the vehicle registration certificate from the bank starting in August 2022. The bank did not respond, so the customer sold the vehicle in July 2022. The bank confirmed the last payment was made in 2018 but noted the account’s balance had not been settled, making the bank the vehicle’s titleholder despite the debt being prescribed.
The OBS highlighted that credit agreements with banks clearly state the terms and conditions. According to the OBS, “there is no maladministration on the part of the bank in enforcing its contractual rights”.
The OBS elaborated: “Our office cannot compel the bank to waive its contractual right, as it is in accordance with contractual law. In the case of a vehicle finance agreement, the terms and conditions would provide for, amongst others, the amount of credit extended to the consumer by the bank and the rate and manner in which they would repay the bank.”
The agreement specifically states that the bank remains the vehicle’s owner until the account balance is fully settled. Since no evidence showed the balance was paid off, the bank retained ownership. Although the debt had prescribed, preventing the bank from legally pursuing the balance, it could still take legal action to reclaim the vehicle.
“We were unable to make a finding in favour of the complainant and/or force the bank to concede to his request that the vehicle registration certificate be released,” the OBS stated. “Based on similar complaints, banks often accept reduced settlement amounts and may not hold a consumer liable for the full balance, though this is at the bank’s discretion.”
It’s a matter of principle
The relationship between a bank and a customer is based on mandate. The bank must ensure it carries out valid instructions received from a customer.
An elderly woman visited her bank to arrange a payment for her taxes due to the South African Revenue Service. Her banker suggested that because the payment was more than a month away, she could invest the money for a short period. When the taxes were due, she could withdraw the investment with interest, thereby earning some extra money.
Following this advice, she instructed her bank to open the investment account and transfer the funds. Confident that her money was safely invested, she later discovered it never left her transactional account. When she approached the bank for the interest she would have earned, her bank dismissed her claims. It argued that although it helped her to open the investment account, she was responsible for transferring the money herself, which she had failed to do.
The OBS investigated and found evidence supporting the complainant’s assertion that the bank was supposed to transfer the money on her behalf. The bank was deemed liable for the lost interest. Agreeing with the OBS’s recommendation, the bank paid the interest to the complainant.
This is a hold up
A bank should ensure that its internal administrative duties are performed in an efficient manner to prevent customers being inconvenienced.
In December 2020, the bank placed a hold on the complainant’s secondary investment account because of alleged fraud reported by a third party concerning the complainant’s business account. Although the bank informed the complainant about the hold on the business account, it neglected to mention the hold on the investment account.
Under the Code of Banking Practice, banks can hold accounts suspected of illegal activities. The bank’s investigation led to the hold being lifted from the business account on 18 January 2021. However, the investment account hold remained, unbeknown to the complainant, until they attempted to withdraw funds on 7 August 2023 and were told it could not be processed.
The bank finally lifted the hold on the investment account on 11 August 2023. The complainant had to visit a branch again to access the funds, causing unnecessary inconvenience.
“The bank had failed to lift the hold from the investment account simultaneous with the hold being lifted from the business account. Our office accordingly recommended to the bank to pay a distress and inconvenience award of R1 000, taking into consideration the numerous calls made to the bank by the complainant, the service failure on the part of the bank, and the fact that the complainant was required to attend to a branch on more than one occasion to have the matter resolved,” the OBS stated.
The bank agreed with the recommendation and compensated the complainant.
Read the fine print
Always read the fine print, and if it seems too good to be true, it usually is.
The consumer purchased a vehicle, and a balloon payment had to be paid at the end of the term. The consumer was not aware of the balloon payment, disputed same, and approached the OBS for assistance.
The OBS investigated the matter and read the contractual agreement.
“It was evident in this instance that the final payment was a balloon payment or same could be refinanced in order to pay it off. We could therefore not make a favourable finding in the consumer’s favour, as the balloon payment was embedded in the vehicle asset and finance agreement which the complainant was legally bound to,” the OBS stated.
Consumers have a duty to read the credit agreement diligently and thoroughly to familiarise themselves with the terms and conditions. The consumer remains liable for the outstanding balance of the vehicle and asset finance account.
The consumer was offered a refinance option to pay off the balloon payment.
