By Desiree Reddy
There has been considerable media attention over the last few weeks on account closures by banks. Although there are no statutory requirements in this regard (the Banks Act is silent on the issue of account closures), it is not the case that a bank has unfettered discretion regarding account closures. An overview of relevant considerations is set out below.
Your account opening terms are likely to contain a clause relating to account closure, and what happens in the event of such a closure to funds held in the account. It is important to read and understand these clauses. It is also important to remember that the bank is bound to follow the process for account closures, as set out in the terms.
Our courts have accepted that one of the implied terms of the bank-customer contract is that a banker may not cease to do business with a customer “except upon reasonable notice”. The bank may also not close an account in credit by payment of the credit balance without giving reasonable notice (Joachimson v Swiss Bank Corporation, 1921). What constitutes “reasonable notice” depends on the character of the account and the special facts and circumstances of each case. (Prosperity Ltd v Lloyds Bank Ltd, 1923).
The Code of Banking Practice, issued by the Banking Association of South Africa, provides that a bank may not close an account without reasonable prior notice given to the client to the client’s last contact details. The code reasonably expects customers to ensure that they provide the bank with their most up to date contact details to enable the bank to send the required notice to the correct address. The code is a voluntary code that sets out the minimum standards for service and conduct you can expect from your bank with regard to the services and products it offers. Most licensed banks in South Africa subscribe to the code.
The Ombud for Banking Services is of the view that it is clear from case law and the Code of Banking Practice that it is insufficient to warn a client that the account may be closed if the client does not comply with certain conditions. Formal written notice, which is capable of being tracked, is preferred – so as to provide evidence that the notice has, in fact, been sent within a reasonable period prior to the actual closure. The bank should notify the customer of the date on which they intend closing the account.
As to what constitutes a reasonable period, each case would be considered on its own merits. However, a period of one to two months for individual accounts and two to three months for business accounts is considered reasonable by the Ombud, depending on the nature of the accounts and the number and nature of transactions on the account.
Reasonable notice of closure is also required under the Financial Sector Conduct Authority’s Conduct Standard for Banks (March 2020). The Conduct Standard further prescribes that a bank must provide the client with reasons for the account closure and provides for limited circumstances where a bank may close an account without first providing reasonable notice and reasons to a client. These are if the bank:
- Is compelled to do so by law; or
- Has reasonable suspicion that the account is being used for any illegal purpose;
- Has made the necessary reports to the appropriate authority.
Know your rights, understand your position. Remember also, that as an individual or small business, you are able to refer certain disputes with your bank to the Ombud (www.obssa.co.za).
Desiree Reddy is a director of Norton Rose Fulbright SA who specialises in banking law.