This is the case of a customer who entered into a loan agreement with a bank but decided to terminate it barely a week into it. By the facts, he had a better understanding of the terms and conditions afterwards and considered them unfavourable. The bank accepted to cancel the agreement but charged him administrative fees as a percentage of the loan amount. He disagreed with the fees since he did not access the loan. Similar complaints between banks and their customers come up on many occasions.
To my mind, we can appreciate the merits or otherwise of the bank and the customer’s stance in the complaint at hand by considering three fundamental procedures in credit administration. These are the pre-agreement disclosure, the facility letter (offer and acceptance) and the cooling- off period. Meanwhile, it is worth noting that many banks make information on their products and services available to the public through flyers, websites and other official communication channels they have.
Such marketing information is to help customers to understand the products and then make informed decisions. Regarding loan products, a prospective borrower who approaches a bank with an application must be provided with a pre-agreement statement as required under Section 18 of the Borrowers and Lenders Act, 2008 (Act 773) currently under an amendment.
The pre-agreement (loan) statement or the term-sheet as some banks prefer to call it, is mandatory and must contain clear and comprehensive information relating to the principal loan amount, a repayment schedule, interest rate and other credit costs (processing/administrative fees, insurance) including the “basis” of any related costs that may be calculated by the bank if the borrower breaches the loan contract. For instance, a bank may quote on its term sheet an indicative administrative fee of X% of the loan amount with a condition that “this fee will be payable on acceptance of the loan.”
Apart from these essentials, the nature of each credit transaction and the inherent risks associated with it also influence the terms and conditions which a bank will include in a pre-agreement statement and by extension the main loan contract (facility letter). In effect, a pre-agreement statement is not cast in stone and open for negotiations between a bank and borrowers on such indicative terms and conditions. Surprisingly, many personal or retail customers sleep on their rights and do not negotiate for more favourable terms, unlike their corporate counterparts. Personal customers behave in like manner because many, if not all the banks have predetermined and structured loan products for this market segment.
Procedurally, the prospective borrower applies for the loan, the bank issues the pre-loan agreement, conducts pre-screening to satisfy itself with the necessary requirements and borrowers’ creditworthiness and then offers the loan agreement to the borrower. Some banks in their bid to cut down on the turnaround time put together into one document, the application form, the pre-loan agreement and a (default) acceptance letter that is signed by the customer later.
The intention behind this arrangement is clear but can be fraught with nuances such as misunderstanding, apprehension or under duress which must be resolved before the borrower signs the agreement. Based on the understanding that the customer has agreed on the pre-agreement terms and conditions and follows it up with an official acceptance of the facility letter (the offer), a binding loan contract is, therefore, established within the ambit of law.
Nonetheless, the issue that sets the tone for misunderstanding between the bank and the customer in question is about what constitutes the actual acceptance of the offer. Is it the mere signing of the acceptance letter or when the funds have been paid into his account? We also noticed in this case that the customer’s complaint is about the administrative fees to him even though he did not access (withdraw) the fund when it was paid into his account.
To resolve those misunderstandings between banks and their prospective borrowers, the Central Bank in February 2017 issued the “Disclosure and Product Transparency Rules for Credit Products and Services” to be used alongside the Borrowers and Lenders Act. Rule 23 clearly states that (i) “all clauses of [a credit] agreement shall be presented in clear and simple language to maximize consumer comprehension” and (iii) in case of a contradiction of clauses in the credit agreement, the interpretation that is most favourable to the consumer shall prevail.”
Indeed, time is of the essence and has monetary value in credit administration. Even in our daily activities, the value of time is acknowledged by the expression “time is money.” In that respect, to avoid disagreement between banks and prospective borrowers on such matters regarding formal acceptance and access to the loan, the cooling-off period is advised as stated in rule 29.
Rule 29 states that (i) “ lender shall give a consumer a cooling-off period of five (5) working days immediately following the signing of a credit agreement between the lender and the borrower, during which time the borrower may, on a written notice to the lender, cancel the agreement without having to pay penalty charges. The borrower may take advantage of this clause provided the credit amount has not been accessed. Rule 29 further states that “(ii) the lender may, however, charge an administrative fee for the cancellation of the loan that is not to exceed 0.25% of the principal amount of the loan. This fee shall be void if the reason for [the] cancellation of the credit agreement is due to improper disclosure or failure to comply with any aspects of these rules by the lender.”
Regarding the case before us, the problem to resolve is whether there was any contradiction (misunderstanding) in relation to the clauses or the bank made an improper disclosure. If it is the bank’s claim that it made full disclosures concerning the administrative fees and, there are no contradictory clauses and the customer read and understood all the terms and conditions as a whole before signing the agreement at free will, I will aside with the bank for the fees. My decision will be in favour of the bank if it also becomes clear that the customer is purely engaging in absurd interpretation of those terms and conditions.
But if it is the case that the clauses in both the pre-loan agreement and the facility letter are defective by omissions or lack of clarity thereof, and the customer has acted within the cooling-off period of five(5) days without actually withdrawing the funds, the bank needs not charge him the administrative fees at all. Controversy! Ab Absurdo! Thank you for reading. I always enjoy your company. Let’s keep the discussion going. God Bless You.
This script was written by a Chartered Banker with a flair for feature writing. Apart from his work schedules, he edits or proof-reads corporate material for his colleagues, executive managers – including distinguished professionals working in various fields outside Banking. Through this column, his articles feature on third-party online media platforms in Ghana and outside. Email: Kwaku.Anumu@gmail.com