Words on wealth: report reveals shocking admin failures by banks and credit firms

The National Financial Ombud Ombud Scheme (NFO) has been operating for just over a year, and last week it released its first annual report for 2024. The scheme incorporated the ombuds offices for insurance, banking, and non-bank credit providers under an overarching Chief Ombud, with separate divisions for the different industries. Thus, the annual report covers, among other things, consumer complaints across these financial services industries, with each division presenting its own statistics and case studies. (The report is available to download at https://nfosa.co.za/)

What struck me in the case studies for the banking and credit divisions was the number of cases that were decided in the complainant’s favour because of administrative failures on the part of the product provider, including the absence of transaction records.

These are isolated events, so one cannot generalise and conclude that there are widespread administrative weaknesses in the banking and credit industries. But when one considers their supposedly sophisticated computer systems, even a single case of this nature is concerning.

Access to home loan account

The complainant (Mr A) compromised his banking details, which led to fraudulent online transactions on his credit card after funds were transferred from his paid-up home (mortgage) loan account to his credit card account. The question was how the fraudsters could have had access to Mr A’s home loan account.

When Mr A had entered into the home loan agreement, he had opted for an access facility on the loan. He had settled the outstanding balance on the loan prior to the repayment term lapsing and had not instructed the bank to cancel the bond and close the account. 

According to the report, the complaint turned on whether any funds should have been accessible from Mr A’s home loan at the time of the fraudulent transfer under the terms of the mortgage agreement. 

And here is where it gets interesting. The bank (which is not named) argued that, under the product rules, Mr A’s access facility allowed for withdrawals from the paid-up account. However, when requested to do so, the bank was unable to furnish the NFO with a copy of the product rules! (Exclamation marks are rarely used in financial journalism, but I think one is justified here.)

The NFO then compared the agreement with similar products and the law of contract, and concluded that the funds should not have been available to be accessed by the fraudsters. It recommended that the bank refund Mr A all amounts withdrawn from the home loan account as a result of the fraud, which it did.

Client penalised for bank error

Mr B had R1,690 deducted from his bank account with no reason. He submitted a fraud complaint to the bank, as he had no knowledge of the transaction. On investigation, it was established that the deduction was made by the bank in connection with a previous payment. Mr B had made a payment of R3,000 to a beneficiary at another bank. A system error had occurred, resulting in the payment being reversed. Mr B had therefore made another R3,000 payment to the beneficiary. However, despite the system error on the first payment, the beneficiary received both payments of R3,000.

Instead of going after the beneficiary to retrieve the R3,000 it had lost as a result of its own systems error, the bank tried to recover the amount from Mr B! (Another one, perfectly justified.) And so it deducted the R1 690 from his account, which was the available balance in the account at the time, and flagged the account for an outstanding balance of R1 310.

The NFO confirmed that Mr B had reinitiated the R3,000 payment because of the bank’s system error, which was no fault of his own. The NFO also pointed out that the bank had not notified Mr B concerning the debit of R1 690 and that it had tried to recover the funds from its own client’s account as opposed to the beneficiary account.

This is inexcusable. I am just sorry I can’t give you the name of the bank.

Correctly, the bank refunded Mr B his R1 690 and removed the outstanding R1 310, on recommendation from the NFO.

Unworthy credit providers

Three cases involving non-bank credit providers (such as furniture chains selling on credit) show a disturbing lack of attention to records. 

1. Mr C claimed to have settled his credit account but noticed it was still active and accruing charges. The furniture finance credit provider could only provide internal system notes stating that the account was still open. When the NFO requested formal account statements, the credit provider was unable to do so. On the NFO’s recommendation, the account was closed and an amount of R26 983 written off.
2. Mr D complained about overcharged interest and unauthorised value-added services on his building materials credit account. The credit provider was unable to provide a complete, signed agreement or account reconciliation. Owing to the lack of supporting documents, the NFO recommended that the account be closed. The outstanding balance of R11,708 was written off, and the account was marked as paid up.
3. Ms E had a cellphone contract with a telecom provider. The debt Ms E owed on the contract was transferred to a collection agency, then sold to another. She insisted she had made payments to the first collection agency, but these were not reflected in her statements. The NFO requested statements from the telecom provider and both collection agencies, and pre-sale documentation. None of the parties could produce records showing payment history or accurate balances, the report says. Ms E’s outstanding balance of R24,450 was written off at the NFO’s recommendation.

* Hesse is the former editor of Personal Finance.

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