CBN Headquarters

Cries of customers over banks excess charges appeared to have finally caught the attention of the Central Bank of Nigeria (CBN), which is compiling a list of approved charges for money deposit banks, writes Festus Akanbi

A Lagos High Court sitting in Igbosere area of Lagos recently presided over a case instituted by a private school against a money deposit bank over an alleged uncoordinated and unprofessional handling of N280 million loan facility the school procured from the bank. According to reports, the school told the court that the bank offered a N280 million loan facility to it (the school) for the completion of the first phase of its expansion programme situated at Sango-tedo, Lekki.

The school’s management alleged that amongst the terms contained in the offer letter, which formed the basis of the loan contract, was that the applicable interest rate shall be 17 per cent per annum but the bank “failed, refused and neglected” to apply the mutually-agreed rate of interest of 17 per cent per year, but went ahead to arbitrarily charged and applied interest which at various times were as high as 19 per cent per annum, without the knowledge and consent of the school and worse still, without communicating such applicable interest rates to the school as the bank was expected to do. The school, therefore, prayed the court to appoint independent auditors/chartered accountants to thoroughly and comprehensively investigate all transactions that have taken place on the account since inception of the facility with a view to determining the issues raised.

Suffering in Silence
Banking industry analysts said while the management of the school was able to take the bull by the horn by taking its battle to the court to seek redress, quite a number of private and individual bank customers are suffering in silence as far as the problem of bank excess charges is concerned. At a recent customers’ forum in Lagos, scores of aggrieved customers took turn to condemn the regime of excess charges slammed on them by their banks.

Among the unannounced charges banks normally deduct from customers’ accounts are five per cent VAT on every current account, Commission on Turnover (CoT), usually N5 on every N1, 000 withdrawn or transferred from current account; cell phone/email alert charges, penalty fee for loan default, searching fee, usually N5, 000 paid to credit agency to establish the credit worthy status of those seeking loans. Others are N210 monthly maintenance fee for every current account, N5 inter-state commission for every N1, 000 transferred into or withdrawn from savings accounts in a state different from where the savings account is opened or domiciled etc.

Some customers at the forum complained that some banks, instead of charging the usual N9 that all GSM providers charge per text message, impose an amount, sometimes as high as N20 per text message sent, to alert their customers of transactions in their accounts.

CBN Wades in
It is obvious that as a result of the mounting complaints that the Central Bank of Nigeria (CBN), earlier in the month, expressed its preparedness to address complaints of arbitrary and excessive charges in the banking industry. The apex bank disclosed this in its “exposure draft for guide to bank charges,” addressed to deposit money banks (DMBs) and other stakeholders.

The CBN explained that the ongoing review of the guide to bank charges would ensure that charges in the industry align with present economic realities.

The document explained: “The CBN is currently reviewing the extant guide to bank charges, which has been in use since January 2004. The review is intended to align the tariff regime in the banking industry with present economic realities and offer a platform for standard application of charges on different types of banking products and services.

“An important component of the review exercise was the development of a minimum disclosure to all customers prior to the consummation of every credit transaction.”

The CBN explained that the goal of the review is to produce a guide that is collectively owned by all stakeholders in the banking industry with the concomitant feature that it will accommodate the freedom of operators to charge competitive prices, to protect consumers from arbitrary and excess charges.

“Part of the draft document recommended that for current account in credit balance, “interest rate of 0.5 per annum, payable monthly on daily balance of N500, 000 above.
Similarly, for savings and deposits account, it recommended a minimum of three per cent per annum on daily balance, which shall not be subject to any condition.

“Lending rates, should be Monetary Policy Rate (MPR) + maximum of eight per cent (customer must be notified at least 48 hours before the application of the new rate),” it added.

For processing/renewal fee, it also said that the fee shall be “negotiable subject to maximum of one per cent of the principal (one off charge).”

Why Customers Keep Mum
Financial Consultant and Managing Director, Kenob-Lyn Nigeria Limited, Mr. Kenneth Nwachineke, said many bank customers are unable to protest the arbitrary charges for fear of losing credit facility from time to time with the banks.

Nwachineke hailed the CBN for its efforts towards enhancing customer protection and financial literacy in the country. He emphasised the need for openness on the part of customers in order to reduce the unfair charges imposed on them by banks. He said despite the warning by the CBN to banks over exorbitant lending rates and excessive charges that they imposed on their customers; there were still complaints about such charges.

The apex bank had noted that the practice discouraged savings and did not promote healthy banking practice in the country, saying, for an industry that thrives on trust and confidence, excessive bank charges do not bode well for long-term sustainability and stability.

Nwachineke observed that with the trend, many commercial banks paid as little as one to three per cent on deposits while keeping lending rates high.

“One of the core businesses of banks is lending. However, there are times when there are errors in the charges associated with the credit facility. But the fear of losing such facility makes some bank customers to suffer in silence rather than making official their complaints,” he said.

Speaking on why bank customers must voice out their grievances against the banks for the vexatious regime of bank charges, Nwachineke said, “If the error is not complained about, the charges will continue unabated and uncorrected; there is a tendency for the error to repeat itself; in the case of an over-draft facility, the configuration error otherwise known as excess charges will be added to the outstanding balance, thus leading to double charges and reducing the value of the initial amount of facility granted to the customer.”

Saving Culture
According to a firm of forensic accountants, Blueprints Associates, the issue of excess bank charges can discourage the saving culture, which the CBN has been championing since its foundation. The firm contended that the extremely low rates paid to savers and depositors posed a major dis-intermediation risk and were inconsistent with the development goals of financial inclusion. One of its products, Banks Accounts Review Scheme (BARS) is a scheme directed towards the financial recovery of overcharged tariffs and amounts charged against customers in error or without any basis by banks.

The scheme is also designed to reduce the cost of finance, which is essentially bank interest on overdraft facilities, Commission On Turnover (COT) and other handling service charges. These costs are normally regulated by Customs, CBN Statutory Regulations, Banker’s Tariffs and mutual agreement between the banks and their customers. The company noted that customers suffer adversely when these regulations are not strictly complied with by their banks and a loss to a customer can run into millions of Naira where the volume of transactions are quite substantial.

Under Section five of its recently issued Monetary Credit, Foreign Trade and Exchange policy guidelines for fiscal years 2012/2013, the CBN stated that it would continue ‘to maintain the consumer protection office at its head office and branches to enable members of the public forward their complaints against banks.’

According to the banking watchdog, “Where any of the cases is proved, the bank (CBN) shall be required to make necessary amends’, adding that, ‘The measures are aimed at encouraging good banking habits and promoting efficiency in the delivery of financial services as well as boosting public confidence in the system.”
What bank customers need to realise is that most bank charges are regulated by the highest banking authority in the country - the CBN. What that means is that every bank charge is governed by law. Therefore, no bank has the right to go above the law regulating bank charges.

However, analysts maintained that most of our banks in this country overdo the normal and legal thing, adding that banks take advantage of the ignorance of their customers with respect to various laws governing bank charges. The banks know that their customers may not have the time to go through their bank statements and even if they do have the time, they cannot know how the various bank charges figures are arrived at. Invariably, it will be safe to infer that banks in this country live fat on their customers’ funds as a result of various excess charges they inflict on their customers’ accounts.