I just read the news in the Business & Financial Times of Monday, January 23, 2023 captioned “COCOBOD default further dampens investor confidence” whereby some banks have debited the accounts of their customers after crediting them with income accrued and realised from Cocoa Bills investments, that is, reversed the credit entries. Also reading a news item on MyJoyOnline, on January 23, 2023 captioned “Cocoa bills default: BoG, COCOBOD agree to allow banks to use COCOBOD’s deposits to pay retail customers”, it says the Bank of Ghana, initially directed banks not to pay customers their maturing cocoa bills investments, following cash flow challenges facing COCOBOD. If it is true the reversals were done with the directives of the Bank of Ghana, the banks should have “positively” defied that directive. This is so wrong by the laws of banking, banking 101, and no bank can debit the account of a customer to pay a third party or make an investment without mandate and not even the Central Bank, the Regulator, can give such directives.
Fortunately, there is a press release dated 23rd January, 2023 by Bank of Ghana circulating that the Cocoa Bill was to be have been held by the banks and not sold by the banks to their retail customers. Technically the Bank of Ghana is saying they have not given the directives for customers’ accounts to be debited and the banks are on their own.
The only circumstance that may allow a bank to debit the account of a customer without recourse to the customer is where there have been wrongful credit entries. Even with that there are legal laid down processes to be followed which if not followed may put the bank at a legal risk. It is therefore illegal to do such credit reversals on credited earned income from investment in Cocoa Bills from the accounts of customers.
If the rollover of the matured bills with interest were rolled over without having first crediting the bank accounts of customers, this would not have been that complicated though still subject to testing the Banker-Customer relationship. Once credits have been made, any reversal must be subjected to the laws relating to banking. The banks have missed the opportunity to defend the law protecting their customers and business, failed also in their fiduciary duty to seek the interest of their customers at all times, and made customers helpless on their own.
I intend to empower the bank customer with certain rights with respect to the Banker-Customer relationship, to know how to deal with the bank in such circumstances and address the issue of whether or not, banks can debit customers’ account without their mandate, express consent, and if they do, what remedy do the customers have. I will also be giving an indication as to what customers who have been wrongly debited by way of reversals of their earned income on the Cocoa Bills can do to bring the banks to book. There are laws that govern the practice of banking and binds all parties, customers, banks and the Bank of Ghana. The banks and Bank of Ghana cannot do as they wish. First let us look into the Bank of Ghana press release dated 23rd January 2023 before we go into the substantive issue of the wrongful reversals.
THE BANK OF GHANA PRESS RELEASE
Yes, Bank of Ghana has a press release on the Cocoa Bill trying to give what I will call a “post mortem” explanation for what has happened. We have heard, but that does not resolve the problem and banks cannot be absolved from what has happened. There are so many questions to be answered regarding paragraph 3 of the statement, which states that:
“Cocoa bills, like the Bank of Ghana bills, were designed as instruments to be held by Financial Institutions. Unfortunately, it has come to the notice of the Bank of Ghana that some Financial Institutions sold their instruments to their retail client. To reduce the cash flow challenges on retail holders of cocoa bills, the Bank of Ghana, Cocobod and the commercial banks have agreed to allow banks to use Cocobod deposits/placements held at the various banks to cater for retail customers who may not want a roll over of their cocoa bills.”
As the Regulator, when did it come to the notice of Bank of Ghana that some Financial Institutions (FIs) have sold their instruments to their retail customers and what consumer protecting mechanism or sanctions did it put in place to hold those FIs responsible for selling unauthorised products to customers. Again why is the Bank of Ghana trying to regularise a wrong product sale by allowing the banks to use Cocobod deposits/placements held by them to cater for retail customers who may not want a roll-over of their cocoa bills? Is Bank of Ghana now giving the authority for an illegality to be regularised? Why is the Bank of Ghana not asking the banks to refund all the sale to customers of a product they should not have sold in the first place upon its maturity? I do not see how the Bank of Ghana, Cocobod and the Commercial banks can agree to automatically roll-over customers matured investments without the express consent of the customers?
It also beats my imagination how banks can use Cocobod deposits/placements held at the various banks to cater for retail customers who may not want a roll-over of their Cocoa Bills? Is the Bank of Ghana saying it expects the banks to be keeping those monies as cash in their vaults and not investing them or lending them for income? How is that helpful if the funds have even been invested in the same Cocobod Bills and other Government Securities that is being subjected to the debt exchange programme? Now, if the placements have not matured, how will that work? If the placements have matured and Cocobod has placements with the banks why is Cocobod not using its own funds but taking that of retail customers who were wrongly sold the bills anyway? If some banks bought the Bill in their name and on sold the Bill to their customers, what did they do with the liquidity released? Should the banks not be directed to refund their customers’ investment upon maturity. If the Bills were purchased in the name of the customers, why did Bank of Ghana not notice that sales were being made in individual names? Is it a situation that the banks saw a risk and transferred it to their customers and if that was the case, should there be sanctions?
Why is the Bank of Ghana not sanctioning the banks that apparently mis-sold an unauthorised product to customers? and, as the lender of last resort, why is Bank of Ghana not lending money to the banks to pay off these innocent customers when the Cocoa Bills matured? Why is the Bank of Ghana making the rollover of the Cocoa Bill an opt-out rather than an opt-in arrangement? By paragraph 3 of the statement, the Bank of Ghana is telling the customers who have wrongly been sold the Cocoa Bill that it is now approving or ratifying the wrongful product sale and that customers can decide to opt-out if they so wish.
The press release does not in anyway replace remove or reduce the legal risk to be faced by the banks that reversed the credit to their customers by debiting their accounts without mandate. Even wrongful credit entries by banks has rules regarding reversals, how more rightful credit entries.
WRONGFUL CREDIT ENTRY BY BANKS
Where a bank incorrectly credits a customer’s account with money that does not belong to the customer, or not entitled to, the bank is allowed to reverse the wrongful credit entry. Even with that, the bank will be estopped if the customer can satisfy the conditions laid down in the case of United Overseas Bank V. Jiwani.
- That he, the customer, was owed a duty. Banks owe customers a duty to provide them with accurate information in the statements.
- That this duty has been breached resulting in the customer being misled, that is the bank misrepresented the state of the customer’s account.
- That relying upon this mistaken belief, he, the customer, has in good faith altered his position in life, that is he has spent the monies or committed himself towards spending it.
In order to satisfy conditions (b) and (c) above, per Lloyds Bank V. Brooks, the customer may have to show that the incorrect entry is consistent with previous credit entries to his account. This was a case where the bank erroneously credited the customer with income from a trust and the bank was unable to recover because the customer had altered her position as a result of her belief that she was entitled to the money.
This means that a bank cannot without notice in certain circumstances even reverse wrongful credits without notice to the customer, if the amount is consistent with expected amounts in the account and the customer has checked the balance, and committed to using it. How then can banks reverse rightfully earned Cocoa Bill income credit entries?
An example is where you receive your salary of about Ghs2,332.00 every month between 24th and 30th. You see a credit entry of Ghs2,320.00 on 25th and issue a cheque to a third party to be cashed and it is returned because the says it was a wrongful credit of Ghs2,320.00 which has been reversed without notice to you. The law says the bank has a legal issue to answer should you suffer any loss as a result of the returned cheque.
Even if there are circumstances that a bank cannot recover wrongful credits to a customer’s account, then how much more when the credit is rightfully yours as in income from your Cocoa Bill that has been credited and reversed without notice to you. You were expecting income of GHS526.32 from your Cocoa Bills on January 19, 2023 and you got an alert of a credit to your account or checked your balance and saw the credit. You then earmark, commit yourself, to use the money to paying certain critical bills and the bank reverses it. The bank will have a legal issue to answer should you issue a cheque and it is returned unpaid.
In Holland V. District Bank Of Manchester And Liverpool the courts recognised the bank’s right to effect correcting entries after it had credited a customer with funds to which he was not entitled. However, it was pointed out that reasonable notice should be given to the customer before effecting correcting entries especially if he has been informed of the balance in the account. Should the bank debit the account without providing the customer with notice it would be liable in contract and libel if it dishonoured cheques drawn by the customer, who relied on the inflated balance in the statement.
There is even no duty on a customer according the TaiHing Cotton Mill Case, Catteron V. London County Bank to check your bank statement, since it is the bank’s duty to give the customer correct statements at all times. So once you saw the credit entry of your income from the Cocoa Bills, there is no obligation to recheck the statement whether it has been reversed, since it is rightfully earned and you have committed to using it.
DEBITING AN ACCOUNT WITHOUT MANDATE
A principal duty of a bank as established in the case of Joachimson V Swiss Banking Corporation is to repay the customer’s funds upon a written demand and also to obey the mandate of the customer. The relationship between the bank and the customer is contractual and no bank has the unilateral right to vary such contracts without prior notice and express consent by the customer to debit the account.
The bank debiting a customer’s account without mandate, wrongful reversals without prior notice, resulting in wrongful dishonour of cheques drawn by the customer, may incur liability for breach of contract and libel.
- Breach of Contract
A bank should pay its customers funds upon demand. Breach of this duty would render the bank liable for breach of contract. If substantial damages are to be awarded against the bank, the customer must show that he has suffered a special loss. Failing this by Gibbons V. Westminster Bank only nominal damages would be awarded.
However, a business customer may obtain substantial damages, where his credit was damaged as a result of the bank’s action Ocean Crest Ltd V. National Westminster Bank.
- Libel
The words ‘refer to drawer’ or insufficient funds’ if incorrectly used have been interpreted by the courts as lowering of the customer’s character. Substantial damages would be awarded against the bank without the customer having to show that a special loss has been suffered as per Jayson V. Midland Bank.
WHAT YOU CAN DO AS A CUSTOMER
Banking practice is a well-tested legal environment and I find it unbelievable that banks knowing the risks, can decide to debit customers account without mandate or reverse rightful credit entries without customers’ consent. In fact, a bank has no right to even reverse a credited salary with instructions from an employer without prior notice to the customer, the employee. This is basic banking 101 and I wonder what banking students will be learning if this is allowed to pass. It will be in dissonance with what they are being taught and I wonder the answer a lecturer can give if asked a question by the student, why the banks could reverse the Cocoa Bill income credits? May be just say, Ghana for you.
Banks survive on trust and confidence, and it is a well regulated system, so letting this happen is a disappointment and a big blow to the business of banking. In any case, all is not lost and my practical advice to affected customers as a professional banker on your side but for which you need to speak to your lawyer about, is simple as follows:
- Accounts in Credit
Issue a cheque on your account that covers your existing credit balance on your account before the reversal plus a portion of the amount that was reversed. If your balance was GHS1,000 and you were credited with GHS526.32 income from the Cocoa Bills, issue a cheque for GHS1,300 and let the bank deal with the matters arising. They dare not return it as “Refer to Drawer” or “Insufficient Funds” and they cannot pay by giving you an un-solicited overdraft with charges.
Even if you had a credit balance at the time of the reversal, you can still issue a cheque for only the GHS526.32 You however have to write to them that you have issued a cheque, stating the number and payee, and that it is with respect to the income from your Cocoa Bills investment and let them deal with it.
- Loan or Overdraft Accounts
Customers who had loans with the banks should write to the banks, instructing them to use the amount credited from the Cocoa Bills to pay down their loans. If it fully covers your loan, consider it paid off. If it covers part of your loan, challenge any interest charges that does not take into consideration your instruction to pay down the loan. Do your own outstanding principal repayment calculation and once you have paid off less the Cocoa Bill amount, write to the bank that your loan contract with them is over.
Those with overdrafts that were cleared with the credit from the income from the Cocoa Bills should not accept any overdraft interest charges from the date of credit and continue using the facility to the agreed overdraft limit. Issue your cheques taking the credit into consideration and let the banks return as “Insufficient Funds” or “Refers to Drawer”.
As they say “if the hunter has learnt to shoot without missing, so will the birds learn to fly without perching”. Leave the headache to the banks to deal with, for not following basic banking law 101 of not having the right to debit a customer’s account by way of reversals without mandate.
CONCLUSION
The ordinary Ghanaian bank customer is already financially stressed with this debt exchange, haircut, brouhaha and banks should not take advantage of customers, the weaker party, in this Banker-Customer contractual relationship to do what they want. Banks owe their customers a duty of care and this was a good opportunity for the banks to use banking laws to protect their customers, and themselves once the income from the Cocoa Bills were credited to the accounts of their customers. Unfortunately, the banking system has lost qualified and experienced professional bankers that know the laws relating to banking and can question a directive from Bank of Ghana that flouts the core of banking practice. The rollover arrangement of the Cocoa Bills should have been an “opt-in” rather than an “opt-out” arrangement and banks debiting customers’ account without mandate is a no-no.
Time to test the law, talk to your lawyer or “fama Nyame na ontua won kaw (leave it to God to punish them)”as we prefer. The reversal of the Cocoa Bill income from customers’ account is like a loan customer unable to pay the loan on due date. One day you will go to the bank and they will tell you they are waiting for a loan customer to pay them before paying you and you will soon realise that the serpent that was not killed in Genesis has grown to become a spitting dragon in Revelations.
The author, is a Chartered Banker with over 20 years’ banking experience in senior management positions. He also holds an LLB and an LLM. (Contact: [email protected])
