UAE: The latest UAE Central Bank circular revising the general terms and conditions governing personal banking practices virtually reads like an overzealous charter of demands on behalf of the banks. The provisions are heavily skewed in favour of the banks.
The circular itself acknowledges the fact that the text of the entire content has been drafted and approved by the Emirates Banks Association, giving the impression that it may have been meant to serve as a discussion paper. But the notice addressed to the chief executive officers, general managers and managing directors of banks, and signed by the Central Bank Governor, asks the banks to comply with the new regulations.
This raises a very valid question about the relationship between the Central Bank and the Emirates Banks Association. The association itself describes it as a society of banks for public interest, established under registration by the Ministry of Welfare and Social Affairs. And its stated objectives include protection of the interests of the member banks and defence of their rights. There is not a word about customers in the charter, but no one can blame the banks for that.
That the new circular is more than for discussion purposes is clear from the fact that banks have already started implementing the new provisions, some of which are completely unrealistic and unsympathetic to the prevailing economic situation and unduly protective of the banks. Seen in the context of a variety of stabilisation programmes being put in place at various levels to help the affected sectors and their stakeholders in most countries, the move does appear contrarian.
The important question is whether the role of the banks’ grouping as a defender of the interests of its members allows it to appropriate functions of the regulator. The ramifications of some of the new provisions make this question more pressing. For instance, the new regulations state that if a customer suddenly loses employment, the bank can freeze the account and recover all its dues without even informing the account holder. It is a great relief for customers that the Central Bank has since clarified in some specific cases that such action was uncalled for.
Another curious provision in the new regulations relates to the right of the banks to arbitrarily change the terms and conditions applicable to products and services. The governing rule in this context, as set out in the previous guidelines issued in February 2011, stipulated that the “banks or finance companies are not allowed to alter or vary terms and conditions for granting the loan or the facility during the tenor of the loan or the facility, unless agreed to in writing by the borrower. In case of changes to the commissions or fees, customers must be notified, at least, two months prior to implementation of such changes”.
The new rules have diluted the provision for the consent of the customer by removing the need for a written consent. The new rules only require the banks to inform the borrowers. In fact, the rules not only give the banks the sole discretion in deciding the changes, but also give them the freedom to enforce the changes with retrospective effect.
“The bank may, from time to time, and at its sole discretion, with prior notice to the customer, by any means that the bank deems fit, change or amend any of these terms and conditions. Such changes shall apply on the effective date specified by the bank in the notification sent to the customer,” so says the new rule.
The same kind of double standards can be seen with regard to the security of online transactions as well, which lets the bank off the hook with relative ease. There is a specific clause under which “the customer releases and discharges the bank, its employees, officers and representatives with regard to damages suffered by the customer directly or indirectly due to such unauthorised access by or disclosure of confidential information to third parties, provided the bank has maintained adequate IT safety standards”. The bank’s responsibility is defined rather vaguely as ‘maintaining adequate IT standards’ while the customer’s responsibilities, including storage of sensitive information on the personal computer, are clearly elaborated.
It is indeed doubtful if such one-sided clauses have been accepted into the new policy after sufficient thought. In fact, the electronic version of the circular suggests last-minute changes and insertions to add an extra safeguard here or a more punitive action there, particularly when it comes to the more controversial clauses.
The rather aggressive posturing by the banks will necessitate counter moves on behalf of the customers, a task which in the past had been performed only by the members of the Federal National Council. The new regulations will surely provide them ammunition for the coming sessions.
