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Olaka vs. Kenya Commercial Bank Limited

By | April 4th 2012

Policing the banks is a prudent safeguard

By Pravin Bowry

The essence of Banking is to receive money in order to lend it to others or to finance economic activity.

Depositing money in banks and borrowing is a daily activity, and in this age of computers the customer – the depositor or the borrower – needs to be extremely wary of how the banks are dealing with the customers’ monies.

The Kenyan banks provide their services at exorbitant and arbitrary rates with the customer having very little say. From bounced cheques, to depositing cash, to unauthorised overdrawn accounts to delayed repayments all erodes the customer’s hard earned money in the form of penalty charges.

Credit card companies charge a full month interest even if payment is delayed for a day.

Inefficiency, human and computer errors, negligence of officers, wrong accounting and even daily manipulation of calculations must cost Kenyans millions of shillings. Banks are accustomed to delaying transmission of monies, holding monies in suspense accounts, and not crediting incoming payments for days. Not crediting the RTGS payments is another problem.

By law where does the customer go to complain against his own bank and how much are customers losing?

As a comparison, in England bank complaints reached all time high and a staggering £2 billion was handed back to customers in the last six months by financial institutes. Now, 515 complaints an hour are lodged, most against the so-called major banks. The reality in Kenya is not any different.

Regrettably, there exists no legal machinery where customers can complain and get redress for the ills which the banks deliberately and negligently perpetuate to the detriment of the client.

If a bank, for example, wrongly bounces a cheque when the account had funds, recourse is not immediate. A customer, prepared to stick his neck to exert his rights, will have to resort to a civil case which can take years of cumbersome proceedings, and for not very big amounts most customers grudgingly give up the fight.

A damning picture can be painted of an industry more interested in chasing profits than treating customers fairly. For big and small complaints, most banks treat clients with utmost disdain, indifference and in most cases they get away with their wrong doings.

In Kenya the Central Bank of Kenya licenses, supervises and regulates the bankers. Central Bank has the right to inspection, advice and direct banks, and even the power to intervene in the management.

There is an urgent need for fundamental overhaul of handling of complaints against the banks and Financial Ombudsman Service should become a priority. The Deposit Protection Fund,  which gives paltry redress to a customer when the horse of bank having gone under has bolted, is of no help in day-to-day complaints against the bank.

The Kenya Bankers Association is an in-house organisation not encompassing all banks and has a lame voluntary code which sets standards of good banking practice for banks.

Dragging their feet

The little publicised code of conduct has a mechanism of dealing with complaints “fairly and quickly” and for arbitration with a code Compliance Officer in place but few customers have been made aware of the Association’s existence.

Those customers who go to court to exercise their rights have to wait for years. The case of Francis Okeny Olaka vs. Kenya Commercial Bank Limited (Civil Case No. 7 of 2008) was decided after four years even when the bank filed no defence.

In the case of Z.A. Jaffrey Vs Fidelity Commercial Bank Limited [2008] eKLR, judgement was given after four years in case where monies from an account were withdrawn without authority and the Lady Justice H.M. Okwengu had this to say:

“The upshot of the above is that I give judgement in favour of the plaintiff as against the defendant and declare that the plaintiff is entitled to reversal in respect of the debits in his account to the extent of KShs.5,511,759.75. I order that the defendant shall pay the plaintiff the sum of Kshs.5,511,759.75 together with interest at court rates from November, 2003 until payment in full”

The “Ombudsman” under the Commission on Administrative Justice Act, Act No. 23 of 2011, does not have the mandate to address all customers’ complaints and perhaps it would be helpful if it can review legislation to bring banks into the definition of “administrative action”.

A Kenyan customer of a bank needs to be vigilant, and examine and re-examine his monthly statements and accounts.

If every entry is carefully questioned and banking and accounting practices not taken for granted, customers stand to save thousands.

The banks have adopted an escapist attitude when mammoth frauds –  attributable to staff – take place by referring the matters to the Banking Fraud Unit and bank refusing to pay the customers until criminal cases are finalised, sometimes taking years. Even after the criminal cases are finalised the banks are in the habit of dragging their feet.

Being proactive to exert bank customers’ consumer rights is the first step, and policing the banks by law another desired safeguard.

The writer is a lawyer. [email protected]

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