At the request of the National Treasury, the World Bank Group (WBG) has released a new report focusing on consumer transactional accounts and fixed deposits offered by retail banks in South Africa.

“This study represents the first step in improving market conduct practices in the banking sector, to ensure that bank customers are treated more fairly than in the past,” Treasury said in an attached statement.

The study was commissioned by National Treasury to provide independent research on identifying the extent to which banks treat their retail customers fairly in relation to transactional and fixed deposit accounts.

It added that the findings should not be seen as applying to any specific bank or all banks equally and that the treatment of customers varies from one bank to another as well as by product offering.

According to the report, fair treatment refers to:

• The appropriate design of products and services that meet customers’ needs;
• The provision of clear information to customers at the point of sale;
• Ensuring that products perform as customers have been led to believe; and
• Ensuring customers are able to submit complaints and disputes, and have these resolved.

Problem areas

The study identified potential shortcomings in bank conduct at each of these stages, and made recommendations on how to potentially correct them.

“The findings are deemed to be potential shortcomings because while the conduct of banks is not necessarily in breach of legislation or regulations, it may fall short of fair treatment principles and international best practice (or experience),” Treasury said.

It added that the study is written as an ‘exception report’ – in that it identifies potential shortcomings in the conduct of banks, rather than also focusing on good practices that do not require intervention.

Some high-level findings include:

1.      Complex product design that makes it difficult for customers to compare products;

2.      Potentially unfair terms and conditions;

3.      Potentially unfair fees;

4.      Wide variation in what, when, and how information about product features and pricing is disclosed; and

5.      Gaps in regulation, and inconsistencies in how regulation is applied.

Recommendations

Recommendations to address the above issues include:

• Introducing new obligations on financial institutions to ensure their processes for developing, and making changes, to account and deposit products focus on product suitability for customers;
• Considering new measures to promote the provision of transactional accounts that respond to the needs of low-income customers, including in terms of cost and value;
• Having an effective regime to prohibit unfair terms and fees for account and deposit products; and
• Implementing an improved disclosure regime to ensure that account and deposit product customers are provided with timely, clear and comparable information by all institutions.