Bank ombudsman in a spin over fraud

The Ombudsman for Banking Services was established to provide impartial and well-reasoned resolutions to consumer complaints against South Africa’s retail banks. To ensure a quick and efficient service the Ombudsman and his staff are committed to values s

It emerges that the Ombudsman received 20832 enquiries last year, from which it opened 3684 new files (or complaints). A closer analysis of these complaints proves telling. Standard Bank heads the list of retail banks with 1008 cases, followed by FNB (983 cases), Absa (850) and Nedbank (683). The remaining 160 complaints arose from client interactions with smaller banks such as Capitec (75 cases) and African Bank (49). The Ombudsman went to great lengths to explain that the number of new cases per bank did not reflect poorly on a bank’s internal complaint resolution processes. “The banks vary considerably in size, client profile and product mix,” he said. “And at various stages during the year, the major banks’ clients were targeted by Internet banking fraud syndicates, which contributed to an increase in the number of complaints against those banks.”

Criminal syndicates leave their mark...

A total of 3574 complaints were resolved in the period under review. The top four banking activities under the “complaint resolved” heading include ATM transactions (32.7%), Internet banking (16.5%), mortgage finance (14.6%) and credit cards (9.6%). Ombudsman, Clive Pillay, notes that despite government’s focus on consumer protection, the number of consumers falling prey to criminals continues to rise. It seems the sharp increase in ATM crime and Internet-based fraud has led to a spike in complaints too. Ironically consumers are falling victim to criminals who make use of the very technology that makes modern day banking so pleasurable.

Crime-related cases have a big impact on complaints resolution statistics. The Ombudsman observes: “The percentage of decisions in favour of the complainant increased from 36% (in 2010) to 47% last year. This was influenced largely by the number of findings made in Internet banking (phishing) fraud cases where the customer is usually partially reimbursed.” (Phishing, reports wikipedia.org, is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication). Resolved complaints statistics show that 659 (56%) of the 1168 ATM complaints were resolved in the banks’ favour versus just 213 (36%) of the 591 Internet banking complaints. Consumers ‘lost’ in 323 (62%) of the 522 cases involving mortgage finance and in 192 (56%) of the 342 credit card complaints.

Consumer complaints were upheld and the full amount of the claim paid in 930 cases (26% of the 2011 total), while 592 (17%) of complaints were compensated in part. Complaints were not upheld in 1891 cases, or 53% of the total. A total of R17.6 million (compared to R11.6 million in 2010) was recovered for consumers. “There has been a substantial increase in compensation to customers compared to 2010, mainly because the recommendations made in Internet banking fraud related cases often involve large sums of money stolen from the customer,” noted the Ombudsman.

A mixed bag of cases...

The Ombudsman publishes an assortment of case findings to give consumers an idea of how future complaints might be resolved. In the first example a complainant made a request to her bank to change the interest rate on her four bond accounts from fixed to variable. The request was made in June 2009 and only implemented in 2011. “The Ombudsman investigation found that the consultant who had assisted the complainant did not advise her on the correct process to be followed when applying for the change,” notes the report. After some coercion the bank agreed to refund the difference between the fixed rate and the variable rate from the time the application was lodged until it was granted.

Another case reveals just how sneaky South Africa’s retail banks are. During a couple’s divorce the bank allowed the wife to make three withdrawals (totalling R75 800) from the joint bond account without the complainant’s consent. The Ombudsman recommended that the bank credit the bond account with these funds, because the withdrawals were made contrary to the mandate held by the bank. Case solved? Not so quickly… After the husband had paid down the bond and was preparing to transfer the property to his ex-wife the bank re-debited the account with the R75 800. Another complaint was opened and the Ombudsman ordered the bank to reverse the transaction for a second time.

The impact of Internet fraud plays out in numerous examples. In one case a complainant admitted to responding to a phishing email. Although the bank initially disputed liability for the loss it emerged that the complainant had contacted the bank immediately after receiving the fraudulent communication, whereupon the consultant not only incorrectly advised him that the email was from the bank but assisted him to respond to it! The bank accepted the Ombudsman’s suggestion that it refund the R34 671.30 loss in full.

In the next case the complainant responded to a fraudulent email that appeared to be from his bank. He provided his confidential password information on a false banking website and was defrauded to the tune of R452 600. The bank initially recovered and returned R82 586.62 of the stolen funds. It subsequently agreed to return a further R243 052.17 due to its failure to suspend some of the fraudulent accounts (to which the stolen funds had been transferred) within a reasonable time.

Staying abreast of international trends

As South Africa’s retail banks vie for a larger slice of the banking consumer market, and surge ahead into the un-banked segment, the requirement for an efficient dispute resolution mechanism grows. The Ombudsman will have to adapt to tackle the needs of financially illiterate consumers on the one end, and the advanced frauds perpetrated against banks and consumers on the other. “While dispute resolution remains our core function, we place great store on keeping abreast of trends on the dynamic financial landscape, domestically and internationally, where the outlook and views of South Africans are increasingly seen as progressive and trendsetting,” concludes Pillay.

Editor’s thoughts: The “big four” banks have been in the headlines of late as the battle for consumers moves to the mainstream media. Retail banks are tripping over each other to offer the best and most affordable bank accounts. Should banks be focusing on increasing market share over servicing their existing clients efficiently? Add your comment below, or send it to gareth@fanews.co.za

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