Banking Ombudsman recovers R26 753

Mr. Vermaak* owned six properties, which were bonded to various financial institutions. During June 2007 he decided to consolidate his bonds, his intention being to obtain maximum value on his properties and to use the funds for further property development.

He approached ABSA Bank to enquire about their Platinum One Account. He was advised that the Platinum One Account would be suitable for his purposes and that the initial cost for setting up the account would be capped at R5000. It was also explained to him that the costs for cancelling the existing bonds that were held by financial institutions other than ABSA Bank, would be for his account. He understood and accepted this.

In due course he attended the offices of a certain firm of attorneys where he signed the bond cancellation documents.

The Platinum One Account was registered on the 8th May 2008.

A few days later he noticed that his current account had been debited with the sum of R26 753.12. Upon enquiry he was informed by the bank that it was to settle the Attorney's costs for registering covering bonds. He was advised that the bank, as a matter of course, registers covering bonds as security for the facility. He was very unhappy about this as it had never been explained to him that he would be liable for the costs of the registration of covering bonds which ABSA Bank requested as security for the Platinum One Account.

The bank admitted not having discussed liability for the attorney's costs with him at any stage, but when he demanded a refund, the bank repudiated liability.

The bank's repudiation was based on the fact that Vermaak had previously had dealings with the attorneys and should reasonably have realised that the costs of registering covering bonds would be for his account.

Vermaak lodged a formal complaint with the office of the Ombudsman for Banking Services, claiming a refund of the sum of R 26 753.12.

The Ombudsman's Office established that the bank generally appoints an attorney to register a covering bond as security for the product. The attorney so appointed is usually one on the bank's panel of attorneys, charged with attending to the bank's legal work. The attorney is accordingly instructed by the bank and acts on behalf of the bank, not on behalf of the client.

The costs that would be incurred for the registration of the covering bonds were never discussed with Vermaak nor disclosed.

Since Vermaak discussed the Platinum Once facility with the bank in October 2007 and the facility was registered only in May 2008, the National Credit Act is of application, in particular sections 92 and 102.

Section 92(2)(b) prohibits a Credit Provider from entering into an intermediate or large Credit Agreement unless the Credit Provider has furnished the Consumer with a quotation, in the prescribed form, setting out the principal debt, the proposed distribution of that amount, the interest rate and other credit costs and the total costs of the proposed agreement.

The bank did indeed furnish a quotation, but it reflected only the principal debt and initiation fee, not the interest rate nor the bond registration costs or estimation thereof. These ought to have been included as they all form part of the principal debt referred to in Section 102(1) of the Act.

Section 102 provides that a Credit Provider may, in certain instances where applicable, include in the principal debt any number of items to the extent that they are applicable in respect of any goods that are subject of the agreement. However, any such amount cannot be included unless the consumer chooses to have the Credit Provider act as the Consumer's Agent in arranging for the services concerned.

The gist of these sections is that the covering bond registration fees could have been included as part of the principal debt but only if they had been disclosed to Vermaak and he had been advised of his right to elect whether or not to have the bank act as an agent on his behalf to arrange for such services.

It is understandable that registration of covering bonds is required by the bank in order to secure the debt. However, if the bank intended to recover these costs from Vermaak it should have made a pre-disclosure and should have afforded him the right to elect whether to accept same or not. In this instance the bank charged the bond registration costs to Vermaak's account without prior disclosure and without affording him any choice.

The office of the Ombudsman accordingly found in favour of Vermaak and the bank refunded Vermaak the sum of R 26 753.12

*Real name and surname withheld