New rules for banking sector

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image-banking4-2015Billy Ntaote

BANKS are now required by law to disclose charges and interest rates to their clients and the public to enable customers to make informed decisions.

According to legal notice No. 41 of 2016 tabled on Monday in the National Assembly by Finance Dr ‘Mamphono Khaketla, banks must disclose the information to enhance the public’s confidence in the financial system.

The Financial Institutions (Disclosure of Bank Charges and Interest Rates) Regulations (2016) were part of a government gazette which also spells out new liquidity requirements (legal notice No. 40) and permissible banking activities (legal notice No. 42) for financial institutions among other rules. Central Bank of Lesotho Governor, Dr Retšelisitsoe Matlanyane, enacted the regulations in her capacity as Lesotho’s Financial Institutions Commissioner.

Under the regulations, banks are obligated to reveal to customers and the public the charges applicable to accounts through a written statement which should be displayed and made available at a branch, point of service and on the bank’s website.

The regulations also bestow in the Commissioner the power to set the minimum criteria for the display of the bank and interest rates.

“Where a bank increases or introduces a new charge applicable to an account, the bank shall disclose the increase or new charge, as the case may be, to each customer in whose name such an account is kept,” reads part of the legal notice.

However, the regulations did not apply to a customer who would have authorised the bank in writing to charge an amount other than the amount required to be disclosed.

“Notwithstanding these regulations, a bank shall explain to a customer and the public the charges related to products and services provided by it in a language that the customer and the public understand,” the legal notice states.

Banks are also required to disclose all the charges applicable to their various products and services. The regulations prohibit financial institutions from charging for carrying out investigations into their customers’ accounts without the latter’s approval.

With respect to interest charges, the regulations stipulate that banks should disclose to customers and the public the rate of interest applicable to an account by a general notice displayed at a branch, point of service and on the bank’s website.

The general notice, says the regulations, should include the annual rate of interest, the frequency of payment of interest, the manner, if any, in which the balance in the deposit account affects the rate of interest and any other circumstances that affect the rate of interests.

“Where a customer opens an account by phone, the bank shall, not later than seven business days after the account is opened, provide to the customer with a written statement which sets out the rate of interest applicable to the account and how the amount of interest to be paid is to be calculated.”

In the event of a change in the rate of interest, or in the manner of calculating the amount of interest applicable to a deposit or credit account, the bank is also obligated to disclose the changes.

This should be done through “a written statement delivered to the person in whose name the account is maintained; a written statement of copies of which are available in each branch of the bank where deposit accounts are kept; or a general notice that is displayed in each of the bank’s branches, at each of the bank’s points of service and on the bank’s websites”.

When advertising their products and services, banks are now obligated to disclose how the amount of interest applicable to each deposit and credit obligation is to be calculated through a statement in the advertisement.

The statement should disclose: “In respect of interest-bearing deposits, the manner, if any, in which the balance of a deposit account will affect the rate of interest; and any other circumstances that may affect the rate of interest and any other circumstance that may affect the rate of interest.”

Banks are also required to notify the Commissioner of any change in bank charges 30 days prior, and in the case of interest rates, within seven days immediately after, or before the effective date.

“Where a bank fails to comply with these regulations, the Commissioner may pursue any remedial measures at its disposal as specified in the (Financial Institutions) Act,” the legal notice adds.

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