Recently, many politicians have been loudly accusing banks of arbitrarily charging interest rates on their customers’ accounts without regulation. However, when examining how banks are registered and incorporated, one might disagree with the notion that banks operate without oversight and have been charging customers exorbitant fees in an unregulated market or industry.
Such an accusation that banks determine interest charges on their customers’ accounts is somewhat unfounded, as it fails to consider the legal principles surrounding banks’ registration and incorporation in the public economy, their necessities, and how they support the economic well-being of individuals and businesses.
In terms of applicable legislation, banks are free to determine the interest rates earned by account holders, including guaranteed fixed rates on e.g., fixed deposits or interest-bearing accounts.
Such an accusation also undermines the common intention of the parties in a contract, which is the bank-customer relationship, as banks have a duty towards their customers, and this relationship is based on a contract. It must also be recognised that banks have a duty to keep their customers’ affairs confidential.
Banks have a common law duty of care toward their customers. The contract entered into between a bank and a customer implicitly means that the bank borrows the initial deposit and agrees to accept additional deposits.
The provisions related to finance charges are based on public law, as they are grounded in a prohibition punishable by criminal law, which is part of public law. Banking sector legislation aims to protect the public against unlawful financial practices.
As a regulated industry, banks operate within the public economy under laws enacted over many decades to govern their activities. These include the Inspection of Financial Institutions Act of 1984, Financial Institutions Investments of Funds Act of 1984, Building Society Act of 1986, Close Corporation Act of 1988, Namibia Financial Institutions Supervisory Authority Act of 2001, Companies Law Act of 2004, Financial Intelligence Act of 2012, Micro-lending Act of 2018, Deposit Guarantee Act of 2018, Bank of Namibia Act of 2020, Financial Institutions and Markets Act of 2021, Banking Institutions Act of 2023, Payment System Management Act of 2023, and numerous common law practices.
These legal instruments regulating public law control of our banking system are detailed and universally apply to banks.
All the above-mentioned legal instruments are the sources of banks’ functions, activities, and incorporation, and all banks are required to comply with the principles and protocols specified in them without exception.
Perhaps the contenders need to understand that the relationship between banks and their customers is governed by the terms of the contract they establish, where trade usage is part of an implied or tacit term that allows banks to charge interest, for example, on overdrawn accounts.
This relationship is one of debtor and creditor, with the customer becoming the creditor, and such a contract constitutes a loan for use.
In that contract, the bank agrees to pay interest on the deposit or current account to the customers. However, when a customer opens an overdraft account or the bank holds a mortgage bond on a fixed property, the roles change as the bank becomes a creditor and the customer becomes a debtor, which makes the bank entitled to charge fees on such accounts.
In contrast, while the contenders argue that banks charge exorbitant fees to their customers, they are not recognising the fact that banks may pay interest to their customers for the use of their money if such a provision is specified in the contract between the bank and the account holder.
Perhaps, the contenders should move a motion in parliament aimed at introducing legislation and adopting it to establish a banking adjudicator whose duties will be to handle consumers’ complaints against financial services providers, including banking institutions.
The financial ombudsman will be the referee between banks and the customers and needs to hold inquiries or hearings in case of dispute and make a binding ruling, as currently our law is silent on a matter pertaining to banking practice.
* Lucas Tshuuya is a legal practitioner from Onaanda in the Uukwambi district. Follow him at tshuuya@iway.na