Before CBN releases the next guide to bank charges

The Central Bank of Nigeria (CBN) issued the first Guide to Bank Charges (GBC) in year 2004. The stated objective of the GBC was to provide “a standard for the application of charges on various types of products and services deposit money banks (DMBs) in Nigeria offer to their customers – individuals, corporate organisations and governments (Federal, State, Local and their Agencies)’’. Following a review of the 2004 GBC, a revised one was issued in 2013. The reasons for the review, according to CBN, were that some of the provisions/terms in the 2004 edition ‘’allowed room for ambiguity and conflict’’ and charges had become ‘’out of tune with current realities in the market.’’ Consequently, the need to reflect current market realities and to reduce ambiguity, were basically the aims for the review.

Recently, the CBN published an exposure draft of a new GBC which it intends to issue. As the CBN itself had variously reported, complaints by bank customers are rising by the day. Similarly, the amount CBN recovered for customers following their complaints is also on the rise. In its most recent reports, CBN affirmed it recovered over N6.0 billion following some 6000 complaints.

The number of complaints and amount CBN recovered did not take into account complaints that were sorted out internally by the banks, and those handled by such organs as Consumer Protection Council, Sub-Committee on Ethics and Professionalism of the Bankers Committee, etc. Viewed from this reality, the reported amount recovered and the number of complaints in the banking system must have been grossly understated by CBN. This situation evidences clearly that the purpose of the GBC is yet to be realised and thus, the need for CBN to identify the root causes and address them before issuance of the next GBC.

From CBN’s reports majority of customers’ complaints centred on “excess charges.’’ That constituted over 80% of all complaints. The others included: conversion of investments and deposits of customers, unauthorized withdrawal of funds, wrongful dishonour of cheques and guarantees, sundry manipulations of and fraudulent acts on customers’ accounts. Although banks can make mistakes but the prevalence and regularity of the excess charges and other unethical and unprofessional practices strongly suggest otherwise. For instance, banks know the correct charges they ought to collect for services rendered, yet the vexatious issue of excess charges, sometimes referred to as illegal charges, keep increasing. This is why some people now refer to what some of the banks are doing as stealing of customers’ money. Thus, finding out the root causes of the problem and addressing them is important if solutions will be found.

Some of the root causes arise from the process adopted in articulating the GBC, provisions in the GBC, financial illiteracy and unawareness of most customers, logistics of seeking and obtaining redress.

With regard to the process that brings the GBC alive, CBN has been magnanimous in coming up with relevant exposure drafts and requesting for input. CBN gets input from many quarters; but that is where the story ends until a new edition is issued. The problem with this process is that CBN, upon collation of the multiplicity of inputs which, given the various interests, are usually widely varied, never subjects such collation to further public exposure before coming out with a new GBC. All that is read in the document is CBN’s claim that it had consulted widely before the issuance of the GBC.

In the 2013 Guide, for instance, those the CBN consulted, according to it, were ‘’all banks and discount houses, Bankers’ Committee, financial experts/consultants. “But it only considered inputs received from other stakeholders.’’ Notice that banks, discount houses and Bankers Committee (an organ made up of banks, CBN and NDIC) were consulted. Banks and discount houses have serious interests in what is provided in the GBC. They certainly must have striven to protect such interests. Notice that on the contrary CBN merely considered inputs from other stakeholders.

It is tempting to suggest that even Consumer Protection Council (CPC) and other groups that represented customers’ interests were generally categorized into ‘other stakeholders’ that the CBN had no need to consult in any way. Yet customers are a key interest group that ought to have been consulted as was providers of services. Consequently, nobody protected customers’ interests. This is a gap in the process that may not have been deliberate but that provided opportunity for some of the provisions in the GBC that favoured providers of services at the detriment of customers/consumers. If added to the fact that banking services providers have enormous powers/influence on their customers, it becomes easier to see why the highlighted problems existed right from the empanelling of the GBC.

The next is open-endedness of most of the provisions in the GBC. To state the least, such provisions are against customers. Indeed, they provided opportunities for banks to fleece their customers. As an example, in many sections, the GBC provided that some charges are ‘’Negotiable’’ without a maximum limit of the applicable rate(s). Examples include charges for “Drawing against Uncleared Effects”, “Equipment Leasing” and “Management Fee”. Compare that with the charge for ‘’Commitment Fee’’ which is described as ‘’Negotiable, subject to a maximum of 1% of the amount (one-off charge).’’ This later description is clearer as the customer and bank know that whatever rate they agree following their negotiation, must not exceed 1% of the subject amount (if it is a loan of N10m, the charge can be less but must not exceed N100,000.00 which is 1% of N10m). Apart from this, the fee is chargeable only once within the tenor of the loan. Thus, the provision of a charge that is ‘Negotiable’ without any limit opens customers to banks’ manipulations.

In some other provisions in the GBC, the description of how the rate of charges should be determined was beyond the control of customers as determination of what such rate should be was, from the on-set, conferred on the banks. Take for instance, a charge for “Local Currency Loans”; its applicable rate is described in the GBC as ‘’Negotiable (the rate should reflect the risk-based pricing model)’’.

What can a customer who needs a local currency (Naira) loan make on the determination of the applicable rate; and who, between the bank and customer should determine the rate that reflects risk-based pricing model? How will most of the borrowing customers we have in the country know that any rate provided by a bank is derived from such a model? From where will the customer start negotiating if he hardly understands what ‘risk-based mode’l is? Besides, who among the parties-provider or consumer of the service is in a position to negotiate better given their financial knowledge and accessibility of relevant information to support negotiations?

As can be appreciated from the above, the most likely provisions in the GBC that will lead to confusion, excessive charge and conflicts are open-ended ones and the ones that indirectly confer on banks better opportunity to exclusively determine transaction rates.

The next element and perhaps, the most important of all is that, there is nowhere in the GBC that provision was made for sanctions against non-compliance with the regulatory document. Experience dictates the need for incorporation of sanctions in the GBC in order to secure reasonable compliance by operators.

Given regard to all the foregoing, a review of the recent exposure draft on the GBC shows clearly that most of the weaknesses in the subsisting ones are still very much around.
• Ogubunka, a chattered banker, is also a consultant