Authored By: Simran
Bank legal liabilities towards the customer with examples
Table of Contents
INTRODUCTION
Being key players in finance industry, banks are required to strictly comply with a complex set of rules and regulations that will ensure that their clients’ interests are protected and advanced. This essay looks at the various legal responsibilities that banks have, particularly focusing on duty of care, secrecy, regulatory compliance and consumer protection legislation. It is therefore important for any bank to learn and abide by these regulatory guidelines from trust being the basis of banking-client relationship. Real-life cases show the consequences of negligence, disclosure of confidential information or not adhering to regulations and this demonstrates why legal frameworks play a crucial role in safeguarding the integrity of the financial sector.The Indian banking system accepts deposits from persons other than its shareholders repayable on demand or otherwise according to Section 5(b) of Banking Regulation Act, 1949.Among services available in Indian banking sector which can be termed as “such” under section 2(1)(o) Consumer Protection Act, 1986 (hereinafter referred to as “Act, 1986”) are accessible by prospective customers.A person who opens an account with a bank; purchases a draft/cheque from it; rents a locker belonging to it or obtains bank guarantee from it is called a client.
LEGAL LIABILITIES OF BANK TOWARDS CUSTOMERS
The right to equal treatment
This right stops financial institutions from discriminating among their clients when providing services based on factors such as sex, age, caste and religion disability. Banks should not necessarily fail to provide programs tailored for specific groups as well. Banks may have different interest rates or products for each customer.
Right to fair open honest dealings
A normal everyday person should understand without much difficulty what is contained in contracts between bankers and their customers. The bank must ensure that they inform the individual about interest rates involved risks among other terms and conditions. The banks should lay bare all matters related prior signing of agreement if there exist any deficiencies. The agreement should be made in a clear and simple language.
Example: In a ruling delivered on the 19th of February, 2021, by a bench of Justices Mohan M. Shanthanagoudar and Vineet Saran the Supreme Court while cautioning banks against breaking open lockers without adhering to the relevant laws and regulations held that banks cannot impose unilateral and unfair terms on customers while operating bank lockers.(United Bank of India v. Amitabha Dasgupta).
The right to appropriateness
You may have heard about a number of cases where financial products with particular emphasis on life insurance policies are missold.Often customers are expected to purchase those products that give salesmen highest commission. It is this right that demands that buyers are sold what they need most. Consequently, a product should not be availed by any bank unless it has known first exactly what its own clients want.
The privacy rights.
Under this legislation, it is necessary for a bank to keep confidential information concerning its customers private; however, there is some information which is required by law or can be provided by bankers themselves.. Banks may not telemarket your details or use them for cross-selling purposes.
EXAMPLE: Shankarlal v. State bank of India held that the nexus between a banker and his client is legal but not moral, if it is violated, there can be claims for minor or substantial damages caused by such violation.
Right to compensation and grievance redress
These are instances where banks need to compensate clients for their goods and services promptly without any bureaucracy in case they breach some basic standards. This also includes other third-party products like those from mutual funds’ houses and insurance companies. Banking ombudsman is an avenue for consumers to seek redress when they cannot get help from their banks.
Example: Keptigalla Rubber Estate Ltd. V National Bank of India ltd ruled that if a banker does not check the signature he would be held responsible for paying on forged signatures and have to make good the loss.
Other Obligations
- The bank’s obligation is to pay customers cheques which do not exceed the balance that is outstanding in their account at present. If this happens wrongly, then the bank has to refund its customer.
- The bank must follow the directions given by its clients. The consumer will retain no say in relation to this matter unless he has asked anything specific himself.
- Their personal information should never be accessed by outsiders as given by bankers.
- Banks are required to keep all records of transactions done by customers.
CONCLUSION
In conclusion, banks carry out their duties in confidence and trust when dealing with financial issues pertaining to their customers. It is important for mutual trust between both parties on sound open banking relationships that recognize and obey prescribed limits set under statute law governing them. This essay focuses on some critical legal responsibilities including duty of care, confidentiality, obeying rules as well as laws safeguarding consumers’ rights against fraudulent practices while citing real-life situations that underscore these legal principles’ significance.
Thus, as changes take place within the sector of banking it demands continuous monitoring of their lawful responsibilities together with the adjustment to regulatory frameworks on their part if they have to earn and preserve customer trust.
