Relationship between Banker and Customer The relationship between a bank and a customer exists as from the date when the bank accepts the customer’s instructions even though an account has not been opened until a certain reasonable period of time later. It is a contractual relationship under which an account is to be established. Relationship between Banker and Customer The relationship of banker and customer does not come into existence unless both parties intend to enter into it. If a person has no account with a bank and is not about to open an account, the fact that a bank renders some causal service for him will not make him a customer. Relationship between Banker and Customer The banker has the expressed and implied right to charge a customer a reasonable fee for a service. The banker should supply a customer with either a passbook or a statement recording the item by item transactions and the balance of the accounts held with the banker. Relationship between Banker and Customer Debtor and Creditor • When a customer deposits money with a bank, the customer is the bank’s creditor and the bank is the customer’s debtor. • When a customer borrows money from a bank, the customer is the bank’s debtor and the bank is the customer’s creditor. Relationship between Banker and Customer Principal and Agent A bank acts as an agent for a customer to collect and process the customer’s cheques and accepts the customer’s instructions in other services such as foreign exchange, buying and selling stocks and shares, payroll management, etc. The customer is the principal in the contract of services. Relationship between Banker and Customer The mortgagor/mortgagee relationship is established when a bank (the mortgagee) takes a mortgage over securities when granting an advance to a customer (the mortgagor). The bailor/bailee relationship is established when a bank (the bailee) takes charge of the valuables of a customer (the bailor) for safe custody, and the bank is bound to take reasonable care of the customer’s property. Terms of Contract between Banker and Customer According to the case Foley v. Hill and Others (1848), the relation between a banker and his customer who pays money into the bank is the ordinary relation of debtor and creditor. Money, when paid into a bank, ceases to be the money of the customer; it is the money of the banker, who is bound to return an equivalent by paying a similar sum to the customer when he is asked for it. Terms of Contract between Banker and Customer The banker must receive cash and collect the proceeds of such items as cheques, postal orders, money orders and bills of exchange for his customer’s account. The money so received becomes at once the property of the banker, and he is indebted to his customer for an equivalent sum; hence the banker does not hold the money as his customer’s agent or trustee. Termination of the banker-customer relationship The relationship between a banker and a customer may be terminated by mutual consent, or unilaterally by either party. Termination of the banker-customer relationship A customer can close his current account with the credit balance duly withdrawn. If the current account is overdrawn, the bank will nevertheless require the repayment of both the principal and interest accrued before the closure of the account can be duly effected. Any unused cheques of the account should be returned by the customer to the bank for destruction. Then the credit facilities should be immediately deleted and any securities should be returned to the customer. Termination of the banker-customer relationship On the other hand, a bank has to give its customer reasonable notice before the closure of the customer’s accounts, which must be long enough to enable the customer to make alternative arrangements except the customer has performed any unlawful acts. The banker’s duty of secrecy It is the bank’s duty not to disclose to a third party any information about its customer. Any violation of the duty of secrecy can result in the bank being sued by the customer. The banker’s duty of secrecy But a bank may disclose information about a customer’s account under the following circumstances : • under the compulsion by law • under a public duty • for the interests of the bank • with the express or implied consent of the customer The banker’s duty of Repayment According to the case Joachimson v. Swiss Bank Corporation (1921), the bank undertakes to receive money for its customer’s account, and that money so received is not held in trust for the customer but borrowed from him with a promise to repay it or any part of it during banking hours at the branch of the bank at which the account is kept, against the customer’s written order addressed to the bank at the branch. The banker’s duty of Repayment The customer must give clear instructions as to how money of his account is to be repaid. When giving the instructions, the customer must exercise reasonable care so that the bank is not misled and forgery facilitated, e.g. instructions on a cheque. The banker’s duty of Repayment The bank’s duty of repayment can be overridden under the following circumstances : • The customer makes a stop-payment order to the bank • When the bank receives the notice of the death of the customer • When the customer has become mentally incapable of running his own affairs The banker’s duty of Repayment • A court may also order the bank to stop making payment from a customer’s account in the following situations : – Receipt of a garnishee order – Notice of a petition of winding-up a limited company – Notice of a receiving order against a customer who is in the process of becoming bankrupt Code of Banking Practice The Code of Banking Practice (Code) is issued jointly by the Hong Kong Association of Banks (HKAB) and the Deposit-taking Companies Association (DTCA) and endorsed by the Hong Kong Monetary Authority (HKMA). This is a non- statutory Code issued on a voluntary basis. It is to be observed by authorized institutions in dealing with their personal customers. It covers specifically banking services such as current accounts, savings and other deposit accounts, loans and overdrafts, and card services. However, the principles of the Code apply to the overall relationship between authorized institutions and their customers. Objectives of the Code of Banking Practice to promote good banking practices by setting out the minimum standards which institutions should follow in their dealings with personal customers; to increase transparency in the provision of banking services so as to enhance the understanding of customers of what they can reasonably expect of the services provided by institutions; Objectives of the Code of Banking Practice to promote a fair and cordial relationship between institutions and their customers; and through the above, to foster customer confidence in the banking system. Terms and Conditions Institutions should make readily available to customers written terms and conditions of a banking service. The terms and conditions should provide a fair and balanced description of the relationship between the customer and the institution. The terms and conditions should be available in both Chinese and English unless the banking service is governed by law other than that of Hong Kong or there is little or no demand for bilingual information. Plain language should be used to the extent that this is consistent with the need for legal certainty. Legal and technical language should only be used where necessary. Terms and Conditions The terms and conditions should, where applicable, highlight any fees, charges, penalties and relevant interest rates (or the basis on which these will be determined), and the customer's liabilities and obligations in the use of a banking service. The terms and conditions should be consistent with this Code. Institutions should advise customers to read and understand the terms and conditions applying to the banking service. Terms and Conditions Institutions should give customers 30 days' notice before any variation of the terms and conditions which affects fees and charges and the liabilities or obligations of customers takes effect. For all other variations, institutions should give customers reasonable notice before such variation takes effect. The notice should show clearly the variation and the ways in which the customer may indicate refusal and the consequence. Terms and Conditions Where the variation involves substantial changes to existing terms and conditions or the changes are very complicated, the institution should provide a written summary of the key features of the revised terms and conditions. Institutions should issue to customers a single document to provide a consolidation of the revised terms and conditions if there are sufficient changes to warrant it. Terms and Conditions Where a customer refuses to accept the variation to the terms and conditions and chooses to terminate the banking service within a reasonable period, the institution should repay the annual or other periodic fee on that banking service on a pro rata basis, if the fee can be separately distinguished and unless the amount involved is minimal. Fees and Charges Institutions should make readily available to customers details of the fees and charges payable in connection with the banking services covered by the Code. A schedule of the institution's standard fees and charges should be displayed in its principal place of business and branches. Details of the basis of charges for services not subject to standard fees and charges should be advised at the time the services are offered or on request. Fees and Charges Institutions should inform customers of the nature and amount of charges debited to their accounts promptly after any such charge is debited. Collection, Use and Holding of Customer Information Institutions should treat their customers' (and former customers') banking affairs as private and confidential. Institutions should at all times comply with the Personal Data (Privacy) Ordinance (PDPO) in the collection, use and holding of customer information. They should also comply with any relevant codes of practice issued or approved by the Privacy Commissioner for Personal Data giving practical guidance on compliance with the PDPO. Personal Referees Institutions may require applicants for banking services to provide in the application forms for such services the names and particulars of persons who have agreed to act as referees for the applicant. The role of referees is confined to providing, on a voluntary basis and upon request by the institution, information about the applicant in respect of the banking service specified in the application form. Referees have no legal or moral obligation to repay to the institution liabilities of a customer unless they have entered into a formal agreement to guarantee the liabilities of that customer. Personal Referees Institutions should require applicants for banking services to confirm that they have obtained the prior consent of the referees for their names to be used. If the applicant fails to give such confirmation, institutions should not approach the referees. In such cases, institutions should decide on their own judgement whether to continue to process the application. Equal Opportunity Institutions should at all times comply with the relevant ordinances for the promotion of equal opportunity, including the Disability Discrimination Ordinance and the Sex Discrimination Ordinance, and any codes issued under these Ordinances. Equal Opportunity Institutions should not discriminate against customers with a disability and should adopt a helpful approach by making available to them banking services on the same terms and conditions as for other customers. Institutions are also encouraged to install specialized machines or software and to provide physical access to facilitate the provision of banking services to persons with a disability. Bank Marketing Institutions should exercise care in the use of direct mail and in particular should exercise restraint and be selective – – where customers are minors; and – when promoting loans and overdrafts. Bank Marketing Institutions should ensure that all advertising and promotional materials are fair and reasonable, do not contain misleading information and comply with all relevant legislation, codes and rules. In any advertising and promotional material for a banking service that includes a reference to an interest rate, institutions should also indicate the annualized percentage rate of interest and other relevant fees and charges, and that full details of the relevant terms and conditions are available on request. Annualized Percentage Rates Institutions should quote the annualized percentage rates of interest on deposit, loan or credit card products to facilitate comparison between different charging structures. Institutions should be prepared to respond to inquiries from customers concerning annualized percentage rates and the methods of calculation, and also to advise customers the annualized percentage rates of specific products. The formula set out in the relevant guidelines issued by the industry Associations should be adopted in the calculation of the annualized percentage rate. Handling Customer Complaints Institutions should establish procedures for handling customer complaints in a fair and speedy manner. The complaint procedures should take into account the following criteria – • (a) transparency - the applicable procedures should be documented; • (b) accessibility - the procedures should be easily invoked by customers; and • (c) effectiveness - the procedures should provide for the speedy resolution of disputes in a fair and equitable manner. Handling Customer Complaints Details of how to invoke complaint procedures should be made available to customers and other interested parties such as personal referees and guarantors so that they know what steps to take if they wish to make a complaint. Institutions are encouraged to make available details of how to invoke complaint procedures in tape recording or in Braille for the visually-impaired. Handling Customer Complaints Institutions should ensure that all their staff who deal directly with customers are made aware of the complaint procedures and are able to help customers by giving correct information about these procedures.