Not for the first time, the Bank of Uganda Financial Consumer Protection Guidelines have been disregarded by the court, leaving a borrower exposed.
Some history
The Bank of Uganda Financial Consumer Protection Guidelines 2011 set standards for banks dealing with their customers, ensure fair treatment of customers, increase transparency and provide for consumer complaints. However, the Guidelines have not been published as law by the Bank of Uganda despite its power to do so. The name “guidelines” is also disconcerting in the cold, hard world of banker-customer relations. It suggests nice-to-haves and not the befitting firm obligations!
In fairness, the Bank of Uganda has issued several guidelines to banks, usually in the form of circulars, my favourite of which is the 2008 guidelines on the Four Eyes Principle. These circulars are usually in relation to the Bank of Uganda and the banks.
Treatment in the courts
The reaction of the courts to these guidelines has evolved from benign acceptance to outright rejection!
Ironically, the first successful application of the Guidelines appears to be in the case of Eden International School v East African Development Bank, to disallow an increase in interest rates not notified to the borrower. The irony is that this defendant bank is not regulated by the Bank of Uganda and is, therefore, not subject to such guidelines. But this one is on the courts, not on the Bank of Uganda.
In Miao Hua Xian v dfcu Bank, the court held that the guidelines did not have the force of law as they do not show their origin, author or time of making. However, in Excellent Assorted Manufacturers v dfcu Bank, the court was insistent that the guidelines had the force of law and applied them to good effect to protect the customer. In Katazamiti v Cairo Bank, the court found the duty of care of the bank to exercise reasonable care on common law principles and not on the guidelines.
In Kwagala v Standard Chartered Bank and also the Court of Appeal in Progressive Group of Schools v Absa Bank, the respective courts had no hesitation in holding that the conduct of the banks was a violation of the Bank of Uganda Consumer Protection Guidelines.
Now, in the latest decision of Choudry v Bank of Baroda, the court found that the guidelines fall short of creating actionable contractual rights because of the lack of a concrete supportive law. The court stated that although the guidelines possess persuasive authority and compliance is expected from all banks, the guidelines do not create any rights for the customer, enforceable at law or in any administrative proceeding.
What is painful is that the borrower's case in Choudry was that the bank ought to have notified him of the periodic interest rate hikes it was making to his home loan. This requirement is expressly covered in the Guidelines, which the court struck down as unenforceable!
So, where are we as consumers of financial services?
It will be necessary for the Bank of Uganda to respond to the mixed treatment of its guidelines by the courts. The financial consumer is entitled to protection in the cold world of finance.
We could borrow a leaf from neighbouring Tanzania. Their Bank of Tanzania (Financial Consumer Protection) Regulations 2019 is a full legal instrument with mouth-watering words like “abusive debt collection” and “safeguarding consumer assets”!
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