The Bank of Ghana (BoG) has directed banks and Specialised Deposit-Taking Institutions (SDIs) to abolish unfair fees, charges and other practices in the banking sector.
This is in line with its mandate to deal with unlawful or improper practices of banks and SDIs under Section 3 of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), and to ensure that the interest of customers of banks and SDIs are adequately protected.
They include Credit Insurance Premium Overcharges, Maintenance Fees on Savings Account, Over the Counter (OTC) Withdrawal Charges, Change of Ownership of Collateral Documents, Application of interest on Penal Charges, Quotation of Monthly Interest Rates on Credit Facilities and Third Party Deposit/Withdrawal Violations.
These practices, the Central Bank said, are deemed to be unfair, inappropriate and detrimental to the financial inclusion agenda and the protection of customers’ interest.
Credit Insurance Premium Overcharges
As part of credit underwriting policies, a number of banks and SDIs require borrowers to hold credit insurance against eventualities such as death, permanent disability and termination of employment.
The Bank of Ghana said while it acknowledges the importance of this practice as a loss mitigating norm in credit management, a number of banks and SDIs take advantage, to overprice the premiums charged to customers, resulting in the increased cost of borrowing.
It, therefore, directed banks and SDIs to apply the same premium charged by the underwriting company to borrowers.
Also, banks and SDIs are not permitted to retain insurance premiums collected from customers with the intention of implementing an internal insurance policy. This, however, excludes commissions for Bancassurance arrangements.
Maintenance Fees on Savings Account
The Central Bank said the application of “Account Maintenance Fees” by banks and SDIs on savings accounts inhibits deposit mobilisation and discourages the use of banking systems by the general public.
It, therefore, noted that the application of such fees has driven a number of savings accounts into debit and in so doing, eroded the deposits of vulnerable depositors who would generally expect their savings accounts to earn interest.
This practice it believes is detrimental to financial inclusion and negates the gains of the financial literacy programmes geared towards promoting personal savings.
Over the Counter (OTC) Withdrawal Charges
The Bank of Ghana noted that some banks and SDIs impose penal charges on customers who withdraw their own funds from banking halls of affected banks and SDIs.
The reason commonly attributed to this practice is to encourage customers to use digital platforms provided by the banks/SDIs for such withdrawals, in order to decongest banking halls. These digital platforms are however not offered for free.
But the Central Bank said while it acknowledges the support of banks and SDIs in the digitization agenda, this action deters some customers, especially those who are averse to the use of digital platforms, from opening and operating accounts.
The practice it said negatively affects the financial inclusion drive, thus the banks and SDIs are directed to desist from levying penalties on customers who withdraw own funds below certain thresholds from the banking halls.
In addition, banks and SDIs shall not levy penalties against customers who request account balances within banking halls.
Change of Ownership of Collateral Documents
The Bank of Ghana noted that some banks and SDIs require borrowers who secure credit facilities with movable assets, to transfer ownership of such assets into the joint names of the borrower and the bank or SDI involved.
In addition, borrowers are made to bear the cost associated with the transfer prior to loan approval and after settlement of loan. This practice of some banks and SDIs, it said, is contrary to section 7 of the Borrowers and Lenders Act, 2020 (Act 1052) which does not permit a security interest to operate as a transfer of title from a borrower to a lender.
Addition, the regulator said the practice further denies borrowers the opportunity to secure multiple loans with a single collateral duly registered in the name of the respective borrowers.
It therefore barred banks and SDIs from engaging in the practice of changing ownership of collaterals presented by borrowers to secure credit facilities from the borrower to the bank or SDI.
Application of interest on Penal Charges
The regulator observed such practice among some banks and SDIs, where penal interest rates levied against defaulting loan customers, are made to accrue interest.
In effect, interest is computed on penal charges in addition to interest on the outstanding loan amount.
This practice it noted results in high outstanding loan balances which customers are unable to pay, resulting in high non-performing loans. The practice is detrimental to the credit market and it therefore directed banks and SDIs to desist from the application of interest on penal charges.
Additionally, it said penal charges shall only be applied on the amount of the delayed interest or principal payment and not on the total outstanding loan amount in accordance with section 55(3) of the Borrowers and Lenders Act, 2020 (Act 1052).
Quotation of Monthly Interest Rates on Credit Facilities
In accordance with section 55 (2) of the Borrowers and Lenders Act, 2020 (Act 1052), the Bank of Ghana said banks and SDIs shall impose on a borrower an interest rate that is calculated on an Annual Basis only in all credit agreements.
Consequently, the regulator cautioned banks and SDIs to desist from the quotation of monthly interest rates on all credit facilities and associated fees.
In addition to the interest rate, the Central Bank said banks and SDIs are not to disclose the Annualized Percentage Rate (APR) related to every credit facility in accordance with the Disclosure and Product Transparency Rules for Credit Products and Services.
Third Party Deposit/Withdrawal Violations
The Central Bank observed with concern, the lack of compliance with the requirement of banks and SDIs to obtain full personal details (name, address, ID and telephone numbers) of a person who makes a deposit into or withdrawal from an account on behalf of another person.
Deposit slips of some banks and SDIs do not make provision for depositors’ signatures.
The regulator said this anomaly makes it possible for third parties to deposit into customer’s account under the guise that the deposit was made by the customer, by simply writing “self” in the column for depositor’s name.
It, therefore, cautioned banks and SDIs to desist from this practice, adding, banks and SDIs shall ensure that depositors sign on deposit slips at all times.