Bank customer relationship law ethics

bank customer relationship law ethics

This paper draws on theoretical and empirical research from legal, ethical and The legal relationship between bankers and their customers was investigated. The purpose of this article is to examine the bank-customer relationship in the the conduct of banks by the customers in the event of breach of those duties. confidence we acquired from our customers, suppliers, stakeholders, and the entire public. Conduct covers the standards, morality and relationship between our The Bank's employees should be obligated to comply with the Law, the.

A bank can refuse to open an account for undesirable persons. It is banks right to open an account. In addition to the activities mentioned in Sec.

bank customer relationship law ethics

The term Customer has not been defined by any act. In terms of Sec. It obviously means that to become a customer account relationship is must.

  • Banking & Insurance

Account relationship is a contractual relationship. It is generally believed that any individual or an organisation, which conducts banking transactions with a bank, is the customer of bank. However, there are many persons who do utilize services of banks, but do not maintain any account with the bank.

Thus bank customers can be categorized in to four broad categories as under: Technically they are not customers, as they do not maintain any account with the bank branch. Those who intend to have account relationship with the bank. A person will be deemed to be a 'customer' even if he had only handed over the account opening form duly filled in and signed by him to the bank and the bank has accepted the it for opening the account, even though no account has actually been opened by the bank in its books or record.

The practice followed by banks in the past was that for opening account there has to be an initial deposit in cash. The term 'customer' is used only with respect to the branch, where the account is maintained. In the event of arising any cause of action, the customer is required to approach the branch with which it had opened account and not with any other branch. Banking is a trust-based relationship. There are numerous kinds of relationship between the bank and the customer.

The relationship between a banker and a customer depends on the type of transaction. Thus the relationship is based on contract, and on certain terms and conditions. These relationships confer certain rights and obligations both on the part of the banker and on the customer.

However, the personal relationship between the bank and its customers is the long lasting relationship.

Ethical banking

Some banks even say that they have generation-to-generation banking relationship with their customers. The banker customer relationship is fiducial relationship. The terms and conditions governing the relationship is not be leaked by the banker to a third party.

The relationship between a bank and its customers can be broadly categorized in to General Relationship and Special Relationship.

Ethical banking - Wikipedia

Thus the relationship arising out of these two main activities are known as General Relationship. In addition to these two activities banks also undertake other activities mentioned in Sec.

Relationship arising out of the activities mentioned in Sec. When a 'customer' opens an account with a bank, he fills in and signs the account opening form.

When customer deposits money in his account the bank becomes a debtor of the customer and customer a creditor. The bank is not bound to inform the depositor the manner of utilization of funds deposited by him. Bank does not give any security to the depositor i. The bank has borrowed money and it is only when the depositor demands, banker pays. Banker does not pay money on its own, as banker is not required to repay the debt voluntarily.

The demand is to be made at the branch where the account exists and in a proper manner and during working days and working hours.

bank customer relationship law ethics

The debtor has to follow the terms and conditions of bank said to have been mentioned in the account opening form. In fact the terms and conditions are mentioned in the passbook, which is issued to the customer only after the account has been opened. This practice has since been discontinued. For convenience and information of prospective customers a few banks have uploaded the account opening form, terms and conditions for opening account, rate charge in respect of various services provided by the bank etc.

Lending money is the most important activities of a bank. The resources mobilized by banks are utilized for lending operations.

However, as seen in the present context, banks may contract with its customers so as to enable the customers to withdraw money or make demand for repayment from any branch of the bank. In such circumstances, there would be an added obligation created on the banks to conform to what they have contracted with their customers. The bank-customer relationship had been historically held as essentially a debtor- creditor relationship.

Even, in the decision of Foley v. Hill, 18 where it was National Provincial Bank Ltd. Lord Justice Bankes reached the same decision as Lord Justice Atkin, whilst adhering to the notion of implied superadded obligations. This would mean repaying by the bank to its customers directly after the customers had deposited the money into their respective accounts. It would also be unrealistic to permit customers, like ordinary creditors, to demand repayment of the deposits from their banks, at any time and any place.

Lord Justice Bankes observed in Joachimson v. When the bank acts outside the authority conferred by the mandate, effects of such acts will not be binding on the customer and therefore, bank alone would be liable for any loss incurred thereby. There should be no legal impediments to the payment of the cheques.

The cheque is also required to be drawn in proper form. Hulls 10 VLR L Weerasooria37 sums up the two courses of action seem to be open to the bank in this context; that is, either dishonor the cheque for want of funds or exercise discretion to grant the customer a temporary overdraft, since drawing of a cheque when funds are insufficient to meet it is equivalent to asking the bank for an overdraft 38 Another important concern for banks is the order of payment of cheques.

Duckworth LR 4 Ex ; Joachimson v. Bank of London 3 F The bank must either pay or refuse the payment by dishonour. The death of the customer terminates the authority given by the customer to the bank and would terminate the bank-customer relationship by operation of law. It also operates as an automatic countermand of any outstanding cheques.

See also, Westminster Bank Ltd. Hilton 43 TLR Punjab National Bank Ltd. See also, Freeman v.

bank customer relationship law ethics

Standard Bank of South Africa Ltd. A request by the bank to re-present the cheque amounts to dishonour and the bank would be liable if the dishonour is wrongful. Vagliano Bros [] AC at Bank of New South Wales [] Knox However, the Ordinance is silent on what amounts to countermand and, who is entitled to countermand.

Clear, unambiguous, unequivocal and unmistakable instructions of the customer to the bank to stop payment are the prerequisites of an effective countermand. Collecting bank is the bank which collects cheques and receives the payment for the said cheques from the paying bank on behalf of its customer. The first standard [i. It is also essential that the bank should be informed of the countermand properly.


Institute of Bankers of Sri Lanka, at pp. Bank of England 17 CB ; Jones v. Gordon [] 2 AC ; Baker v. Barclays Bank [] 1 WLR The bank would be deemed to have acted without negligence where it has acted reasonably.

See for instance, Karak Rubber Co. Bank of Ceylon 59 NLR Midland Bank [] 2 All ER Apart from the legal requirement, the banking practice also jealously guards confidentiality of the customer accounts. National Provincial and Union Bank of England. See also, Tournier v. The duty remains even after the closure of the account and the termination of the bank-customer relationship. National Provincial and Union Bank of England [] 1 KBitself identified that the duty is not absolute and recognized certain exceptions to the duty.

Accordingly, a fiduciary duty could arise; 1. When the bank provides investment advice or financial advice to the customer,74 2. When the customer pledges an asset or signs a guarantee to secure the debt of another customer,75and 3. When the bank acts as an agent or trustee for the customer.

Hooley, Modern Banking Law 4 th ed Oxford: Oxford University Press, ; J. Blair ed Banks, Liability and Risk 3rd ed. Morgan [] 3 All ER 8. A fiduciary duty shall arise only under very special circumstances, such as where relations of special proximity between the parties exit, where the customer places his trust and confidence in the bank and relies on its advice [Barclays Bank plc v.

Hooley, Modern Banking Law 4th ed Oxford: Martins Bank [] 1 QB Oxford University Press, at Bundy [] QB 76 J. LLP at p. The termination of the bank-customer relationship could be done by either party, i.