You are on page 1of 23

A bank is defined in the common law as being an institution engaged in banking business.

It
is the purview of parliament or the courts of the particular jurisdiction as to what constitutes
banking business. The courts established three fundamental principles which apply. The first,
that the business of banking can change from time to time was established in Woods V
Martins Bank [1959] 1QB 57. Woods, a young man with no business experience, inherited
money. He became a customer, even though his account was not opened until weeks
thereafter, when he made an investment in a company on the advice of the manager. Salmon
J in his judgement opined that,

The limits of a bankers business cannot be laid down as a matter of


Law. The nature of such a business must in each case be a matter of fact
and accordingly cannot be treated as if it were a matter of pure law.

This is an important tenet as the banking climate is a dynamic one, as banks respond to
stimuli in the economy to diversify their portfolio in order to remain profitable.1 The second
principle is that, a financial institution regarded as engaging in banking business in one
jurisdiction, is not necessarily so considered in another. This is illustrated in the Irish and
Australian courts where one does not need to open a current account, in order to be deemed
as “engaged in banking business,” as accepting money on deposits and re-lending it to make a
profit, is sufficient. This underscores the last principle borne out in the case law, where an
institution widely considered to be a bank, will usually be treated by the courts as engaged in
banking business. The principle was applied in the Australian case of Commissioners of the
State Savings Bank of Victoria v Permewan Wright & Co. Ltd. [1914] 19 CLR and the
Canadian case of Canadian Western Bank v Alberta 2 SCR 3. However in the UK, the
converse obtained, where in United Dominions Trust v Kirkwood [1966] 2 QB 431, a bank
was defined as an institution that accepts money from their customers in the form of deposits
and then collects cheques on their behalf, placing those cheques to the customer’s credit. The
banks must honour the cheques that are drawn on them or orders drawn on them to pay a
third party.

To carry on the banking business the institution must maintain current accounts for customers
and record debits and credits to the account as per Lord Denning. It is argued that the opening

1
Class notes 28 May 2018, banks engage in securities, insurance, pension, etc. through their subsidiary
companies.

1
of the account is crucial as this defines the duty of care that is owed in the customer- banker
relationship in most jurisdictions. In Great Western Railway Company v London and County
Banking Co. Ltd. [1901] AC 414 cashing cheques regularly for a number of years was
insufficient to privilege the person as a customer of the bank as no account was maintained
there.

In elucidating on the notion of the bank, Lord Diplock considered the size of the banking
business and the quality and purpose of the current account opened. Here the qualities of
stability, soundness and probity were accounted, in relation to the statutes and regulatory
framework are relevant. These include the Financial Institutions Act, the Banking Act, the
Bank of Jamaica Act, and Financial Services Commission Act. The last two of which
established the Bank of Jamaica and the Financial Services Commission respectively.

The duty of care as mentioned by Ungoed –Thomas L is defined by the Legal Dictionary
Online, as a legal obligation which is imposed on an individual requiring adherence to a
standard of reasonable care while performing any acts that could foreseeably harm others.
The quotation references the case of Selangor Rubber Estates Ltd. V Cradock [1968] 2
Lloyd's Rep. 289 and may apply as a recourse for a breach in tort or contract. There are two
important concepts arising, which are firstly, the objective standard to be met in the exercise
of skill and care. The second refers to the unique facts which will be applied in the test. The
principles are but the foundation, and banks will not normally be held liable once there has
been a clear exercise of good faith and the defendant party has met the criteria for being fit
and proper.2

A relationship implies a two- fold duty and it is expected that a customer has certain
obligations. The duty of a customer is to exercise reasonable care in transactions. As in the
case of drawing cheques. This applies even if he or she employs someone to write them. In
London Joint Stock Bank v. McMillan and Arthur [1918] AC 77, an employee of a customer
wrote out a cheque for £2 but failed to write the words. Enough space was left on either side
of the '2' for the amount of the cheque to be altered after the signature to reflect the sum of
£120. It was held that the bank's customer (the employer) did not exercise reasonable care in
making the written order, and had therefore lost his case against the bank.

2
Based on the Financial Services Commission requirements.

2
The foregoing acknowledges that the customer-banker relationship is one that is based on
trust and the assumption that the average reasonable person is also honest. Banks also must
have practiced soundness in its dealings. The test laid down in Selangor regarding the bank’s
duty is,

Whether if a reasonable and honest banker knew of the relevant facts


he would have considered that there was a serious real possibility
albeit not amounting to probability that its customer was being defrauded.3

Selangor’s principles were confirmed in the case of Lipkin Gorman v Karpnale Ltd [1991] 2
AC 548. According to authorities, the judgments of the Court of Appeal on the issue of bank
liability in the instant case, remains the leading authority on the duty of care owed by a bank
to its customer. The case concerns a partner, Cass, who stole money from his law firm and
spent it gambling with the defendants. The firm also sued their banker, who was held to be
aware of the defaulting partner’s weaknesses and activities. Each side alleged that the bank
knew or ought to have known that Cass was drawing on the firm's bank account for the
purposes of satisfying his personal gambling problem, and yet they failed to take any action
The House of Lords held that actual knowledge of the wrong intent of the customer would be
necessary in order to impute liability on the bank as a third party. The Bank could not have
been expected to determine “the commercial wisdom or otherwise” of the transaction it faced
when the customer presented the instrument for transfer. May LJ is cited as saying,
“Presented with a cheque drawn in accordance with the terms of that contract, the bank
must honour it save in what I would expect to be exceptional circumstances.”4 In the words
of Parker LJ, “There are certain unusual cases when a bank will be put on enquiry and when
its failure to investigate circumstances further would constitute a breach of its Duty of Care.”
The crux of the matter is on those “certain unusual cases” which is a phrase similar to the
“relevant facts” cited in the topic. The issue is therefore the circumstances under which a
bank will be held liable for breaching its duty to its customers given the extreme latitude
(arguable though it may be) awarded by the courts.

Banks do not normally have a fiduciary duty to its customers. As a consequence, a court
would not normally impute fiduciary duty to banks in their dealing with commercial or even

3
Class notes 12 June 2018.
4
[1989] 1 WLR 1340 at 1356 A-B

3
their personal customers, even though the latter may be in a more vulnerable position. This
will be explored further in two Jamaican cases involving Sagicor Bank, Jamaica Ltd.
Consequently, the circumstances in which there can be a claim for a lack of duty in relation to
loyalty or fidelity depend largely on the facts and circumstances of each case. The reluctance
or caution on the courts’ perspective is derived from the inordinate need to protect the
banking sector from a flood of litigation, when the immense number of customers are
considered alongside the number of transactions that take place on a daily basis.

The leading case in English law according to the authorities, on the circumstances on which a
fiduciary duty arises in banking is Bristol and West Building Society v Mothew [1996] EWCA
Civ 533. The importance of this case rests in its judgment by Millet LJ,5 that a breach of duty
by a fiduciary may not be a fiduciary breach of duty. A solicitor acted incompetently on
behalf of a building society and the society’s customer in a mortgage contract. He failed to
notify the bank that the customer had a second charge on the property the bank was proposing
to fund. The issue to be determined was whether the breach represented a breach of his
fiduciary duty as a solicitor. It was held by the Court of Appeal that the solicitor’s negligence
in the transaction rendered him liable to the society for a breach of contract, there was no
breach of a fiduciary duty.

The customer is expected to protect his/her own interest also and only rarely would the bank
be expected to act as an agent in relation to customers. Duty dictates that a bank becomes an
agent in certain prescribed instances such when, for instance, the banker collects bills of
exchange and cheques, makes payments for third-party cheques, remits funds abroad and
buys or sells stocks and shares for the customer. In Woods, the courts found that the bank had
undertaken to act as advisor to the client and so was held to have owed a fiduciary duty of
loyalty and fidelity founded on the facts of the case.6To continue expounding on the degree of
responsibility, it is noted also that banks are not usually bailees as there would be a higher
standard expected, such as accounting for profits, returning the exact money deposited,
keeping the money entirely separate from others’ money and protection against

5
Lord Millet: fiduciary obligations a very strict as a principal exposes himself to his agent, however, a servant
who tries his incompetent best is not in breach of these obligations of good faith
<https://webstroke.co.uk/law/cases/bristol-west-building-society-v-mothew-1998> accessed 7 July 2018
6
There were bank leaflets in the bank emphasising their expertise in giving business advice. In
http://lawatleeds.weebly.com/bankcustomer-relationship.html> accesses 4 July 2018.

4
insolvency.7Since that is not the normal case there is no duty beyond that of reasonable “skill
and care.”

The precedent in Lipkin Gorman is that the bank does not owe its customers any particular
duty of care in relation to the ordinary day to day transactions undertaken based on the
authority of the signature on the customers’ accounts. Moreover, the court is equally hesitant
to ascribe a common law or contractual duty of care in the case of its products or services
which may fall outside of routine day to day transactions. That is, to underwrite loans to those
financial speculative or risky ventures which a customer may engage in and may suffer a loss
as a result. A court will not normally acknowledge a liability flowing from this scenario and a
bank could not be said to be negligent.

The judgement in the case of Joachimson v Swiss Bank Corporation [1921] 3 KB 110,
defines the duties of a banker and along with Foley v Hill (1848) 2 HLC 28, is a leading case
on the banker-customer relationship in relation to a customer’s account. In Foley, the facts
established the position that a banker does not hold the sums in a bank account on trust for its
customer. Instead the relationship between them is that of debtor and creditor. When the
customer deposits money in the account it becomes the bank's money, and the bank's
obligation is to repay an equivalent sum (and any agreed interest) to the customer on the
customer's order. This order may be one that is written or expressed as was held in the
Jamaican case of Morrell V Workers Savings and Loan Bank [2007] UKPC 3. Joachimson as
reported in Whiting (199-201) 8 identifies the duties as;

1. The banker must receive money from and collect cheques and other

bills of exchange for the customer and repay the money against the

customer's written order. The order must be addressed to the branch

where the account is kept and repayment made at that branch during

normal working hours (banking practice has changed since then to include

online banking and automated teller facilities).

2. The banker must give reasonable notice before closing an account in

7
Banker-customer Relationship <http://lawatleeds.weebly.com/bankcustomer-relationship.html> accessed 5
July 2018.
8
D. P. Whiting, Banker-Customer Relationships. In: Mastering Banking. (Macmillan Palgrave, London 1985)

5
order that the customer may make other arrangements and also to facilitate

cheques that may have been drawn.

3. Based on (1) supra, it will be seen that the customer (the debtor) must seek

out the creditor (the bank), which is the opposite to the normal legal

requirement that the debtor must seek out the creditor. The customer also is under

a duty to exercise reasonable care in drawing cheques,

and this applies even if he or she employs someone to write them

as London Joint Stock Bank v. McMillan and Arthur [1918] AC 77, cited supra.

The objective standard as applied to the facts are seen in the judgements in the cases of
Khiatani Jamaica Limited; Khiatani, Sunil and Khiatani, Sheila v Sagicor Bank Ja. Ltd.
[2016] JMCC COMM 34 and Marvalyn Taylor- Wright V Sagicor Bank Jamaica Ltd. [2016]
JMCA Civ 38, which represent a commercial customer and a personal customer respectively.
In the former case the court found at [102]9 that the Defendant bank was liable, having
breached its legal standard by failing to take reasonable steps to secure the best price for the
property that it sold despite the bank’s contention to the contrary.

The court also accepts that the mortgagee must take account of the mortgagor’s
interest. That interest in the vast majority of cases will be that the property is sold for
best price possible so that his indebtedness can be reduced by as much as the sale
permits. The margin of discretion afforded to the mortgagee does not mean that he can
act as if he is disposing of his own property. He is actually constrained by legal
standards in what he can do and how he does what he does. At the end of the day if his
conduct is called into question once it can be shown that he breached the legal
standard in the particular case he will be held accountable despite the margin of
discretion afforded him.

<http://supremecourt.gov.jm/sites/default/files/judgments/Khiatani%20Jamaica%20Limited%20and%20Khiat
ani%2C%20Sunil%20et%20al%20v%20Sagicor%20Bank%20Jamaica%20Limited.pdf> accesses 4 July 2018.

6
The bank’s defence that it acted reasonably and in good faith and the fact that there was a
shortfall for which it is seeking restitution from Mr and Mrs Khiatani (‘the Khiatanis’) is not
a sufficient reason to say that it breached its duty to the claimants was rejected. This
judgement arose on the facts of this particular case and not as a result of the banker-customer
relationship per se.10 The overarching issue was the negligence of the bank as a trustee of the
power of sale. In the case of the latter, Taylor-Wright, the Privy Council reversed the Court of
Appeal and reinstated the trial judge’s granting of a summary judgement in favour of the
bank. It was determined on the facts that the defendant’s case disclosed no real prospect of
her successfully resisting the Bank’s claim.11 Both cases affirmed the banker-customer
relationship and arose as a result of the contractual relationship which exists.

A bank has a duty to guard the privacy of the customer in the bank-customer relationship, the
rules of which are laid down in Tournier v National Provincial and Union Bank of England
[1924] 1 K.B. 461. This is a case in which a customer's employer acting on the disclosure of
information from the bank, failed to renew his (the customer’s) contract. Here the negligence
of the bank in disclosing confidential information, led to a harm to the customer. Bankes LJ
gave the underpinning principles, that it is the bank’s duty to treat those information learnt
from the customer’s account and also information arising from the bank-customer
relationship as confidential. Simultaneously, four conditions were given under which
disclosure is permitted. These are (1) where the disclosure is compelled by the law(This is
especially meaningful in light of recent legislation both locally and internationally)12; (2)
where there is a duty to public to disclose, (3) where the disclosure is required in the interests
of the bank and (4) where the customer consented, even implicitly to the disclosure.13

It must be stressed that the time of commencement of the banker-customer relationship is of


the utmost importance in analysing the assessment of Ungoed LJ. The contractual duties of a

10
Justice Sykes’ statement at [1] “The application of the facts to the law.”
11
[2018] UKPC 12 at para. 12 < https://www.jcpc.uk/cases/docs/jcpc-2017-0011-judgment.pdf> accessed 4
July 2018
12
For example Foreign Account Tax Compliance Act 2010, generally requires that foreign financial Institutions
and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders
or be subject to withholding on withholdable payments. and Proceeds of Crime Act 2007. Jamaica.
13
All Answers ltd, 'Relationships Between Banks And Customers' (Lawteacher.net, July 2018)
<https://www.lawteacher.net/free-law-essays/commercial-law/relationships-between-banks-and-customers-
commercial-law-essay.php?vref=1> accessed 4 July 2018

7
banker do not begin until then there is a so called “meeting of the minds” and there is a real
intent on the part of both to establish this relationship as no written contract usually exists
between banker and customer. In Stoney Stanton Supplies (Coventry) Ltd v Midland Bank Ltd
[1966] 2 Lloyd's Rep. 373). Lord Denning MR held that as far as the opening of the account
was concerned, it was not taken out by the company but by the forger, who forged all the
documents. As the company did not authorize the opening, it could not be said that there was
any banker-customer relationship between this company and the bank. This is not the same as
where there taken to be implicit consent as for example where a grandparent opens an
account in the name of a child without the consent of a parent/guardian; or a director opens
an account in the name of the company.

The objective standard requiring ‘reasonable skill and care’ was met in the case concerning
National Westminster Bank plc v Morgan [1985] UKHL 2,14 where a wife sought to have a
second mortgage contract set aside citing undue influence as the bank manager had come to
her home to have her sign documents for the refinancing. The relevant facts are, that faced
with arrears, a husband and wife agreed with the bank to both refinance their mortgage with
liability for the husband’s business. The grounds that the bank did not ask the wife to obtain
independent advice and that the husband was hovering around when the manager spent only a
few minutes advising the wife was rejected. The bank was not found liable and could enforce
its security against the wife. The position that a normal relationship between a customer and
banker did not give rise to a relationship of trust and confidence was affirmed in the
judgement.

The terms of the banker –customer contract have been gradually determined and modified as
banking practice developed over the years. In certain countries like the UK, legislation
governs the use of instruments such as cheques (Cheques Act 1957). Whiting15 in his text
notes even with the provision under section 4, that stipulates that when collecting a cheque
the bank must receive payment for a customer also when an account is to be opened suitable
references must be tendered, a banker is not precluded from opening an account on a
conditional basis on the understanding that it will be closed if references are unsatisfactory.
The provision creates a legal dilemma however, if cheques are collected for the account

14
<http://www.e-lawresources.co.uk/Natwest-Bank-v-Morgan.php> accessed 5 July 2018
15
Whiting D.P. Banker-Customer Relationships. In: Mastering Banking, OP.Cit

8
holder in the meantime as it is quite likely that the account holder has not become a customer,
and the collection of cheques was a risk.

With technology and the development in electronic communication, the banker customer
relationship will require stricter adherence to privacy and security on the part of both parties
to the agreement. Ungoed-Thomas’ observation as to ‘the reasonable care and skill ’standard
is one that is favoured by most courts, in spite of what or how they may construe the duty to
arise, or when the implied contract between the parties begins. The banking sector is
important to a successful economy and commercial banks represent a key player in the sector.
It would not be in the interest of the courts or the jurisdiction that they oversee to employ a
higher standard of loyalty and fidelity, except in exceptional circumstances outside of the
general duties as propounded by the ‘landmark decision’16 of Lord Denning in United
Dominion Trust v Kirkwood [1966] 2 QB 431, as given previously. In the final analysis the
standard or judgements which approximate to the standard of “reasonable care and skill’ may
represent a balance that will enable the continued viability of a bank, without undue hardship
to the customers who themselves took due care. It may also be sufficient to satisfy the
requirement necessary where the bank acts as an agency and certain other duties are imposed
on the bank requiring highly personalized services as the modern banking context demands.

16
E.P.Ellinger, E.Lomnicka, R.J.A.Hooley, ‘Ellinger's Modern Banking Law'

9
References

Textbooks

Ellinger, E.P et al, Ellinger's Modern Banking Law (4th Edn , Oxford University Press 2006)

Whiting, D. P. Mastering Banking . (Macmillan Master Series. Palgrave, London 1985)


https://doi.org/10.1007/978-1-349-17757-8_8

Case Law

Woods V Martins Bank [1959] 1QB 57.

Commissioners of the State Savings Bank of Victoria v Permewan Wright & Co. Ltd. [1914]
19 CLR

Canadian Western Bank v Alberta 2 SCR 3.

United Dominions Trust v Kirkwood [1966] 2 QB 431

Great Western Railway Company v London and County Banking Co. Ltd. [1901] AC 414

Selangor Rubber Estates Ltd. V Cradock [1968] 2 Lloyd's Rep. 289

London Joint Stock Bank v. McMillan and Arthur [1918] AC 77

10
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.

Bristol and West Building Society v Mothew [1996] EWCA Civ 533

Joachimson v Swiss Bank Corporation [1921] 3 KB 110

Foley v Hill (1848) 2 HLC 28

Morrell V Workers Savings and Loan Bank [2007] UKPC 3

Khiatani Jamaica Limited; Khiatani, Sunil and Khiatani, Sheila v Sagicor Bank Ja. Ltd.
[2016] JMCC COMM 34

Marvalyn Taylor- Wright V Sagicor Bank Jamaica Ltd. [2016] JMCA Civ 38,

Tournier v National Provincial and Union Bank of England [1924] 1 K.B. 461

Stoney Stanton Supplies (Coventry) Ltd v Midland Bank Ltd [1966] 2 Lloyd's Rep. 373)

National Westminster Bank Plc v Morgan [1985] UKHL 2

Statutes

Banking Act Jamaica

Bank of Jamaica Act 1960

Cheques Act 1957

Proceeds of Crime Act

11
Question 2.

According to the question commercial banks “appear to enjoy tremendous freedom” in their
role as deposit taking and payment making institutions. The issue is to what extent such an
assertion could be said to be true, given that commercial banks like other players in the
financial sector, are regulated by the central bank. To address the legality of their actions in
imposing certain fees this paper will examine the role of central banks, the obligations of the
banker customer relationship, the statutory requirements underpinning both and the matter of
control that ought or ought not to be applied on this particular aspect of their banking
practice.

The leading cases which define the banker-customer relationship are Joachimson v Swiss
Bank Corporation [1921] 3 KB 110, and Foley v Hill (1848) 2 HLC 28. These ascribe the
legal position of each party in that the banker must receive money from and collect cheques
and other bills of exchange for the customer and repay the money against the customer's
written order. This places the banker not as a trustee in relation to the customers’ account, but
rather as a creditor, as the bank’s agreement is to repay an equivalent sum of money based on
the order of the customer who provides his signature. Specifically the obligations of a bank
are:

1. To honour cheques, once certain precluding conditions are not evident. Failure on the
part of a bank to do so could incur liability with compensation to the client. In the UK
the Cheques Act 1957 imposes obligations on the drawee bank to pay or dishonor
cheques based on a list of factors (section 67.2). It also prescribes conditions under
which breaches may occur in contract and on the principles of good faith.
2. To ensure confidentiality in relation to the account and personal information, unless
falling under the exceptions specified in Tournier v National Provincial and Union
Bank of England [1924] 1 K.B. 461.
3. To follow the customer’s oral or written instructions.
4. To maintain accurate accounting and keep a record of such
5. To give notice before closing an account

Alternatively banks also have the following rights

1. Right of general lien, not exercisable in certain circumstances, such as when,

12
i. Valuables are deposited for custody
ii. Money or documents are deposited for a specific purpose.
iii. Securities have been left with bank by mistake
iv. A customer as trustee of property leaves such with the bank with notification.
v. There is an express agreement that the right should not be exercised.
2. Right of set off. This is the bank has the right to adjust the amount standing to the
credit of the customer against the debit balance in the other account or to combine the
accounts.
3. Right of appropriation. I.e., if a customer owes several distinct debts to the bank.
When the customer deposits some money in the bank without specific instructions and
the amount is not sufficient to discharge all debts, then the problem arises as towards
which debt this amount should be adjusted. In the absence of any specific instructions,
the bank has the right to appropriate the deposited amount to any loan, even to a time
barred debt. But the banker must inform the customer about the appropriation.
4. Implied is the right to charge interest on advances, and reasonable commission for
expenses incurred when acting on the customer's behalf. 17
5. Right to close the account, with notification to the customer.

A banker customer relationship exists because of the mutual confidence placed in each party
to the contract. However, this relationship takes place in the context of a regulator. The
central bank of countries are in charge of regulating financial sector. To perform this function
banks since 1997 employ and adhere to the Basel Committee on banking supervision.
Together with the Bank for International settlements, twenty-five core principles for effective
banking supervision were adopted. These principles according to the Bank of Jamaica (BOJ )
publication18 details the minimum powers and authorities which supervising banking
authorities must have together with the duties which must be performed to be effective. A
foremost specification is a “suitable and potent” legal framework. This objective has been
achieved through both primary and secondary legislation. These are The Banking Act, The
Financial Institutions Act, The financial Building Institutions Act, The proceeds of Crime Act
(POCA) and The POCA Regulations. These acts since the financial collapse has been

17
Mastering Banking <https://link.springer.com/chapter/10.1007/978-1-349-17757-8_8> accessed 7 July 2018.
18
Bank of Jamaica The Central Bank’s Role as Regulator p 7

13
implemented to achieve, strengthen, and maintain a stable financial system, so that the
collapse of the early 1990s will not reoccur.

As a regulator the central bank does not manage banks nor can they assume the proper
management thereof. Such a role reposes only with the board of directors and senior
managers who must satisfy the fit and proper criteria19. It is therefore, outside the scope of the
regulator to prevent the failure of a financial institution. The role really primarily concerns
protecting depositors and an overall collapse of the sector, as with the 1990s crisis. This role
is crucial as this sector is vital for the stability, credibility and viability of an economy. 20

In publications from the Bank of Jamaica. It is noted that banking supervision is ‘double
pronged.’ Firstly, it promotes the safety and soundness of financial institutions so that they do
not become a source of systemic risk and pose a threat to the payment system. Secondly it
promotes an efficient and effective banking system that finances economic growth, allocates
credit and meets the needs of the customers and communities they serve.

The literature asserts that in undertaking that role, they have regular on site and continuous
off site examinations of institutions. In Jamaica, the BOJ is established by the Bank of
Jamaica Act 1960. The BOJ falls within the portfolio of the Ministry of Finance. It is the
monetary authority in Jamaica. Section 34 empowers the BOJ to examine on a yearly basis, at
least, the affairs of each licensee and to ensure compliance with the statutory requirements.
They would also need to ascertain the financial soundness of the licensee. The inspection
involves supervision of practices and also monetary inspection. This aspect uses a risk
management assessment methodology employed by the United States known as CAMELS. 21

Being that there is oversight from an authoritative body such as the central bank, there is
some legitimacy to their levying of these fees overall. Some of these fees because they are
implied are subject to discretion and this may be the loophole for a plethora of fees in spite of
the regulatory mechanisms.

Technology which has impacted banking operations has influenced charges and fees and
introduced new fees. For instance using an Automated Teller Machine (ATM/ABM) to
withdraw or deposit money attracts a surcharge fee. In addition, using the ATM of another

19
A measure of the competence, integrity and qualification of the board and management.
20
Ibid, Op. Cit p 2
21
This stands for Capital adequacy, Assets quality, Management, Earnings, Liquidity and Sensitivity to market
risks. Banking and Finance Law class notes 5 June 2018.

14
bank will attract another kind of fee known as Other Bank Fee. The charge will differ across
bank and according to the type of account. A regular checquing account attracts a monthly
maintenance fee that may be higher than that charged for a regular saving account. Some
banks will waive the maintenance, once a minimum balance is maintained, this fee varies
across banks as there is no one set fee applied by the regulator. The Government
Consumption Tax is applied to these fees. The BOJ publishes these fees annually as part of
its commitment to standards and in accordance with The Banking Services (Deposit Taking
Institutions) (Customer Related Matters) Code of Conduct, 2016. As the regulator and
supervisor of the financial sector, the central bank exercises power conferred by subsection
(4) of section 132 of the Banking Services Act. The Commercial Banks Schedule of charges
and Fees as at 31 December 2017, lists approximately 65 different categories of fees and
charges across eight commercial banks 22including:

 Minimum monthly service charge (waived in some instances where there is a


minimum balance maintained).
 Transfer fees between accounts, inter/intra banking.
 Stop payment/cancellation orders ( local and foreign exchange accounts)
 Savings account- Withdrawal
 Telegraphic transfer of funds
 Ebanking-ABM, using other machines (most internet banking free)
 Depository services- wallets, safety deposit boxes
 Loans and discounts- credit card/ debit card services
 Cash advances
 Late payment
 Overlimit
 Replacement card
 Miscellaneous charges-foreign cheque and draft negotiated
 Manager’s cheque
 Bill payment services –in house charges

22
Banks are BNS, CBNA, FCIBJ, FGB, JMMB, JN, NCB, SBJ.

15
The Code of Conduct 2016, referred to above in Part III, stipulates enforcement procedures
and applicable sanctions such as a warning {S.16 (1) (a) } or a direction { (1) (b) } to the
deposit taking institution should breaches occur in the provisions thereof. The Banking
Services Act 2014 contains provisions, in section 132 (4) (b), that stipulate that the
Supervisor (who under the Act is the Governor of the Bank of Jamaica) may issue a code of
conduct on consumer related matters. The code may provide for matters such as the
obligation to provide customers with reasonable notice of fees and charges, customer access
to information at a reasonable cost, require interest rates to be expressed as annual rate
calculated in a standard manner across the industry,23 impose an obligation to keep the
language in contracts with customers simple and clear and that key terms are brought to the
customer’s attention and require licensees to establish effective methods to deal with
customer complaints

When persons are informed then they will be in a position to make better choices, especially
as it is a necessity for an individual to have an account at a bank or other deposit taking
institution. Necessity is occasioned by payments to be made, including salaries, tax returns,
statutory refund payments (National Housing Trust), insurance payments (claims) and others
which are made through direct credit. Providing information about their practices instills
confidence and trust in the banking sector and depositors and investors will be inclined to
support this valuable sector. Customers however will be dissuaded when they are faced with
a situation where banks seem to operating in a manner which does not engender public trust
and this feeling peaked at the start of the year 2017 when the banks introduced new and what
seemed to be excessively high fees, particularly on dormant accounts and there was a
concerted thrust to have customers use online/ technology based alternatives to in house
banking.

The matter was aired at a Caribbean Policy Research Institute (CAPRI) think tank forum in
Kingston24. The CaPRI’S executive director, Dr. Damien King clearly stated the position that
there should be no regulation of bank fees as this would negatively impact investment and the
profits. This would be brought about by the need of banks to switch costs to other income
bearing products such as loans, or remove the service altogether ( This seems at best a thinly

23
Simone Bowie Jones The regulation of Banking Fees and Customer Service <
https://www.myersfletcher.com/resources/item/the-regulation-of-banking-fees-and-customer-service.html>
accessed 8July 2018.
24
Reported in Daily Observer “ Bank Fees Stir Passion at CaPRI Forum” 16 March 2018 <http://jamaica-
gleaner.com/article/business/20180316/bank-fees-stir-passions-capri-forum> accessed 9 July 2018

16
veiled threat). Currently he gave the profit as $31billion from bank fees for the country’s two
largest banking groups.

Dr. King, made his opinions based on the fact that online banking is an alternative to in-
house transactions, which are avoidable in this age of new technology and online banking.
The opposition government representative (Fitz Jackson) was of the opinion however, that
the weakest and most vulnerable should be protected and their lack of access to a
sophisticated banking methodology would place them at a distinct disadvantage. Mr.
Jackson’s effort to have his Bill tabled in Parliament has not been successful so far, although
the sector is sensitive to public outcry. For example, a leading bank was charging a cheque
encashment fee of $1385 for non- customers. After angry feedback in the press and on social
media about it, the fee was rolled back. The same transaction at publication of the BOJs
schedule as at 31 December 201725 attracted a new rate of $385 for both customers and non-
customers.

The fee being charged on dormant accounts was also raised at the Forum. It was suggested
that the impetus arose on the fifteen year timeline which banks have before these balances are
turned over to the administrator general. It would appear that the banks would want to
appropriate these funds before the turnover. Participant and CEO of Scotiabank, Jamaica
David Noel stated that dormant accounts represented a net loss to his company last year. His
bank since the furor had removed fees on these accounts by the end of 2017, the schedule
showed that all eight commercial banks had no fees on these accounts. It was noted that
dormant fees represented $45 billion in income across banks.

Banks need to consider that they enjoy a wide and varied customer base. Some customers
prefer to be dealing with a person face to face rather than an ABM or an online system. There
is a considerable population of digital immigrants (persons born before the advent of digital
technology), who do not trust the new technology. The trust aspect is very integral to the
customer- banker relationship. A report in the recent press about the closure of two major
banks who have decided to close their branches in Chapleton and Frankfield sparked the ire
of residents as the closure affected personal and commercial banking.26 A notice in one
branch advised using a Bank on the Go in a nearby parish, but one 53 year old customer
expressed that she is faced with removing her money, as she does not know how to use the

25
<http://www.boj.org.jm/financial_sys/rates_charges.php> accessed 9 July 2018
26
The Sunday Observer “Clarendon Vex as NCB, Scotia Cutback” ( 8 July 2019) pp 8-9

17
machine and she usually has to ask for assistance. Other affected had similar stories. Such
stories are not sensitive to the customer or his/ her needs. It also raises questions about
banking safety and security as digital immigrants may employ unsafe means, by allowing
strangers, they naively trust as they cannot do better and they need the access. For the
disabled also this is an added burden, depending on the nature and severity of the disability.
Overall the banker-customer relationship becomes a strained one and there is unlikely to be
mutual confidence.

The proposed Bill contains a mandatory service package which if enacted would form the
Twelfth Schedule to the Banking Services Act 2014. Its provisions are applicable to all
accounts, credit facility or financial instrument between a licensee and a customer. It
stipulates:

 No charges for customer inquiries of any sort, by any medium on any transaction.
 A minimum of 120 free transactions by any medium, per annum, per account.
 No charges for statements.
 Free cheque (or similar instrument) cashing and changing.

In a press report government the then minister of finance, Mr. Shaw told parliamentarians
that 95 per cent of the provisions in the Banking Services Bill were already included in the
Bank of Jamaica’s Code of Conduct for deposit-taking institutions.27 Mr. Shaw further stated
that he had identified 14 provisions in the bill that the previous administration included in the
Banking Services Act, 2014. In other jurisdictions such as Barbados and Trinidad the central
bank stipulated guidelines limiting fees to be charged by commercial banks and deposit
taking institutions, and are debating guidelines to be initiated, respectively28

Governments have seen the need for control in limiting what fees are charged and the setting
of limits on how much can be legally charged. In Jamaica parliament, with the private sector
seems to have decided that these control measures are unnecessary given the measures

27
The Daily Gleaner “Bank Fee Bill Dumped - Gov't Votes To Reject Proposed Law” (February 14, 2018) <
http://jamaica-gleaner.com/article/lead-stories/20180214/bank-fee-bill-dumped-govt-votes-reject-proposed-
law>accessed 9 July 2018
28
Simone Bowie Jones “The Regulation of Banking Fees and Customer Service”
<https://www.myersfletcher.com/resources/item/the-regulation-of-banking-fees-and-customer-service.html>
accessed 9 July 2018

18
already implemented by the legislation, both primary and secondary. There is a long list of
services provided by commercial banks, which affects the ordinary depositor or customer.
There should be minimum standards imposed on these fees and charges such as the minimum
monthly charge on savings accounts, cheque encashments and deposits and withdrawals in
house. The transactions which are basic and common to the ordinary customer, particularly
pensioners and the disabled should attract little to no charge. It is the purview of the
government to make this stipulation and to ensure its enforcement.

The regulator, as the organ of the government is empowered to do apply these controls and
since once pressured, banks have acceded it is reasonable to infer that banks are behaving
indiscriminately and outside of the good faith criterion. As a case in point, when Jamaica
National Bank came on the scene as a bank, they advertised “low and new fees” as their
selling point. To extrapolate, banks are assessing market risks capability and applying this as
a strategy to gain a competitive edge in the market. In short banking is a business and the
sector should not be allowed free -fall without some form of direct control like a limit or cap
on fees and charges. The transient words and phrases contained in Section 132 (4) (b) such
as “reasonable notice,” reasonable cost’” and “standard manner” ought to be replaced with
definite words and figures as those issued in the Central Bank of Barbados Guidelines,
quoted as, “… should not exceed 0.5% of the loan amount, the percentage used to calculate
commitment/standby fees should not exceed 1.0% of the loan amount and charges for
transfers via the Real Time Gross Settlement (RTGS) should not exceed $15 Barbadian
Dollars.” Once this is done as it can be, then consumers can feel “reasonably” safe and
confident when doing business with our local banks.

19
A licensee can freeze an inactive account with a credit balance and classify it as dormant or
close a zero balance inactive account. However, in each instance, this can only be done where
the customer has been given notice ninety (90) days prior, and the notice had set out when the
account would be classified as dormant, how to respond to the notice, and consequence of
failing to respond. The notice should also include the current statement of account and the
whether a dormant account can be reactivated, and in the case of a zero balance account,
whether this can be revived before closure. Also, where the dormant account has a credit
balance, no transactions are to be made to the account, benefits shall continue to accrue, there
is to be no maintenance fee and electronic statements are to be published.

No modification of terms and conditions which would place the customer in an adverse
position, or which differ materially from the initial agreement.

No increase in interest rate, annual fees, other fees and no charges or other change unless at
least 45 days written notice has been provided to the client explaining that they can opt out of
the changes and propose changes. The notice should state when the change will be effective,
how the customer is to respond to the notice and the consequences of failing to respond.

Disclosure of all fees and charges for ABM, automated tellers or any other medium for
processing transactions, prior to the completion of the transaction, and providing the option
for the customer to either continue the transaction, or cancel it free of all fines, charges or
penalty.

72 hours cooling off period after the execution of an agreement, where the licensee has stated
how the agreement can be terminated, free of all charges.

Provision to customers of a “key contractual terms” fact sheet

It is not difficult to see why a bank would be concerned by the provisions of the Bill and of
the minimum service package. The mandatory removal of such a lengthy list of fees would
likely have an adverse impact on a bank’s bottom line. Of note, the very notion of the
proposed obligation of fairness and reasonableness of terms, bearing in mind, what the parties
to the agreement ought to have reasonably known or contemplated at the time of the

20
agreement could impact on the interpretation of many banking contracts and agreements.
Though the Consumer Protection Act has long since contained provisions regarding unfair
contract terms and a requirement for reasonableness in relation to contract terms, this
provision would bring the requirement to specifically bear on all deposit taking institutions
and may cause them to have to amend some of the provisions of their loan agreements,
mortgages and other security documents. It is also likely that the banks will strongly object to
the imposition of a restriction preventing them from implementing any change to its terms
and conditions that would adversely affect a customer.

Different jurisdictions have taken varying approaches to bank fee and customer service
regulation. In Barbados, the Central Bank of Barbados has instituted guidelines governing the
fees which can be charged by commercial banks. These guidelines stipulate that the
percentage charged for application/negotiation fees should not exceed 0.5% of the loan
amount, the percentage used to calculate commitment/standby fees should not exceed 1.0%
of the loan amount and charges for transfers via the Real Time Gross Settlement (RTGS)
should not exceed $15 Barbadian Dollars. Additionally, there is to be no charge for cheque
cashing, for transferring money between customer accounts at the customer’s bank’s ATM,
third party withdrawals in respect of pensioners or for making account inquiries at the
customer’s bank’s ATM. Notification is also to be given within thirty days of the effective
date of new charges, there is a maximum $10 Barbadian Dollar p.a. dormant account
notification charge which is reversible on acknowledgement of account holder and the
minimum balance on which interest is to be paid should not exceed $300.00 Barbadian
Dollars

. Cite this chapter as:

DOI

Publisher Name

Palgrave, London

https://link.springer.com/chapter/10.1007/978-1-349-17757-8_8 pp 109-121

https://www.coursehero.com/file/p2usg8j/London-Joint-Stock-Bank-Ltd-v-MacMillan-and-
Arthur-1918-AC-77-Commonwealth/

21
In addition, the banker is agent

to the customer when, for instance, the banker collects bills of exchange

and cheques, makes payments for third-party cheques, remits funds abroad

and buys or sells stocks and shares for the customer.

A banker has the implied right to charge interest on advances, and

reasonable commission for other services performed for a customer. He or

she is also entitled to be reimbursed for any expenses incurred when acting

on the customer's behalf. The banker has the right to repayment on demand

of any overdrawn balance and has the right to exercise a lien over any of

the customer's property lodged with the bank other than those simply

deposited for safe custody (see below). The lien covers negotiable instru-

use for q.2

Like any other debtor, a bank also has a right of set- off. When a customer has two or more
accounts in the same name and capacity in a bank, the bank has the right to adjust the amount
standing to the credit of the customer against the debit balance in the other account. The bank
has a right to combine the two accounts. For example, Mr X has overdrawn his current
account to the extent of Rs. 10,000 and he has a credit balance of Rs.8,000 in his savings
account. The bank can combine these two accounts and claim the balance of Rs.2,000 after
adjusting the credit balance of savings account against the debit balance of current account,

3. Right of Appropriation: A customer may owe several distinct debts to the bank. When the
customer deposits some money in the bank without specific instructions and the amount is
not sufficient to discharge all debts, then the problem arises as towards which debt this
amount should be adjusted. In the absence of any specific instructions, the bank has the right

22
to appropriate the deposited amount to any loan, even to a time barred debt. But the banker
must inform the customer about the appropriation.

4. Right to Charge Interest and Commission: The bank has the implied right to charge interest
on loans and advances, and also to charge commission for services rendered by the bank. The
bank can debit such charges to the customer’s account.

https://ignoubcom.wordpress.com/2016/01/02/what-are-the-rights-and-obligations-of-a-bank-
in-relation-to-customers-briefly-explain/

What are the rights and obligations of a bank in relation to customers? Briefly explain.

http://jamaica-gleaner.com/article/business/20180316/bank-fees-stir-passions-capri-forum

23

You might also like