What are the obligations between the banker and the customer?

Relationship between the banker and the customer 

The relationship between the banker and the customer can be said to be a contractual one. This means that there is a contract between the banker and the customer in relation to any general transaction and some specific transactions. The contract specifies the obligations imposed on the banker and the customer, some obligations may however be agreed on at a later stage. Bankers are obliged to perform certain obligations; however some obligations are not obligatory and therefore must be agreed on in case that it is not a habit for the banker to perform them. Examples of such services which the bankers are not obliged to prove can be letters of credit, foreign currency for travel abroad etc. The relationship between the banker and the customer was not held to be so specific and close so as to  amount to a relationship of an agent and the customer.

The Banking Code

The Banking Code is a set of rules, regulations and guidelines which set a standard of good practice with respect to banking practice. The code presents commitments of the bankers to their customers. The key commitments state that the banks must act fairly and reasonably and will not mislead the customer in any circumstances. The key commitments promise to give the customer clear information with respect to his or her bank account including all terms and conditions and interest rates. The commitment also promises to keep the customer informed about the changes to the charges, terms and conditions by sending regular updates and bank statements. The Code also obliges the bank to deal with all problems as efficiently as possible. The bank must also keep all the information private and confidential in order for the customer to exercise secure banking. All staff must be aware of the commitments stated in the Banking Code and must also perform them. Given that there is a contractual relationship between the banker and the customer, the obligations and customer’s rights stated in that contract must be in a clear and plain language. If there is a significant change in terms and conditions the customers are entitled to receive a new copy of the terms and conditions so that they are fully aware of the change. The Banking Code is applicable to personal banking customers. The Business Banking Code applies to businesses. There is a significant overlap between the contents of the two codes however the Business Banking Code does not state that the banks will refuse unlimited guarantees. The Business Code also mentions other provisions which may relate to businesses e.g. international payments, foreign exchange.

Obligations of the bank

Generally it is the bank’s primary obligation to take care of its customers and provide services which are fundamental to the contractual relationship of the banker and the customer. Further provisions stated in the Banking Code state what services will the bank provide to its customers as a part of general contractual obligations which are owed to the customer. E.g. the bank will help you to choose products or services which meet your needs and will also give you clear information with regards to services which the bank will provide to you e.g. joint account customer’s rights and responsibilities and many more. The Bank will also provide its customers with regular account statements and all information with respect to running the customer’s account e. g how direct debit works, or cheque payments work etc. If the customer has a passbook the bank will not be required to send bank statements to the customer. The Banking Code also contains provisions regarding the means of notification of the change to the terms and conditions; there should also be a notice period of 30 days which must be given to the customer. If the change in terms and conditions is advantageous to the customer such change can be carried out immediately without the need for notice to be submitted to the customer. The notice period stated in the Banking Code is 30 days however under common law such notice only needs to be reasonable. What is reasonable is determined by the case law.

Implied terms of the contract and duties between the banker and the customer

It is an implied term of the contract that the bank or the banker is not responsible to repay the customer for the proceeds borrowed from the customer until the customer officially demands such a payment. Therefore the customer could not have a claim for debt. This term is the significant term of the contractual relationship between the banker and the customer.

Duties owed by the bank to the customer

There are further duties owed by the bank  to the customer e.g. the bank has a duty to protect its customer from fraud committed by the agents, directors , partners in making  payment orders etc. There are  some statutory protections in relation to the bank in the absence of negligence. There is also a duty of care owed by the bank to the customer when the bank is giving advice on investments or when the bank gives advice or explains security documentation. However it was held that the bank is not under a continuing duty to keep the advice under review. In some circumstances the bank was also held not to have a duty of care to any third parties.

Duties owed by the customer to the bank

The duties are defined by case law and they constitute duties of care to the bank. Any wider duties of care will not be accepted or recognised unless they are implied as  contractual terms. And such term will not be implied if they do not comply with the following requirements, these are  that the term is reasonable and equitable, it is necessary in order for the contract to have business efficacy, the intention to create this term must be obvious and must be clearly expressed and it must not clash with any other term.

Business Days and Hours

It is an implied term that the bank will be open for business on the particular days. Normally these are Monday to Friday except for bank holidays, or if there was a variation in the contract in relation to open days and subject to reasonable notice if the business closes. Each bank sets its own hours of business.