Mbabane: Findings of a World Bank Group Diagnostic Review Report about Eswatini financial sector conduct, regarding pricing transparency, disclosure, fairness of fees and charges for savings and transactional accounts, has laid bare how the kingdom’s financial institutions – commercial banks, Mobile Money Agents and savings and credit cooperatives manipulate customers to suit themselves through a myriad of ways.
In fact, the closer you look at the findings of the report, the more it become plausibly clear that the country’s financial sector use deceptive ways and mislead customers who take or have savings, transaction accounts, mobile money accounts offered by banks, Eswatini’s only building society, savings and credit cooperative societies, and mobile network operators.
It was also clear from the findings of the report that the country’s financial sector, most particularly banks and the building society is not and far from adhering to international good practices for financial consumer protection. Through the financial institutions perceived deceptive behaviour, customers end up being dubbed to buy products without understanding the underlying charges associated with those accounts.
According to the report, the financial institutions were found not doing the precontractual disclosure of fees and charges, were not disclosing precontractual deposit rates, not disclosing accounts contracts, some do not provide statement of account to customers, and customers are not notified when changes to fees and charges and deposit rates are being effected. Strikingly, all these are against the World Bank’s 2017 Good Practices for Financial Consumer Protection. Again, the banks are continuously not adhering to the guidelines issued by the Central Bank of Eswatini contained in Legal Notice Banks Legal Notice No. 62.
In relation to the precontractual disclosure of fees and charges, international good practices insist that it is of fundamental importance that prospective customers should be able to understand easily details of the fees and charges applicable to an account that they are considering. This is critical if the customers are to understand the likely overall cost and how it compares to other products. More specifically, information on the following fees that might apply to a savings and transaction account should be readily available: account-opening, maintenance, and closure fees; transaction fees—on a per-channel basis and including any pay-as-you-transact (PAYT) fees, as well as full details of any applicable fee bundles—checkbook fees; the fees and costs applicable to any overdraft that is allowed; stop-payment fees; direct debit and dishonor fees; and fees applicable to an inactive account. Details of any transaction that is allowed free of charge should also be disclosed.
Fill out applications
Against this backdrop, the World Bank found that fees and charges are not always displayed as required by Legal Notice No. 62 at all places of business. “This was observed in branch visits by the mission team. Further, the mission team was told that post offices acting as agents for banks do not display fee schedules, as they are not considered a place of business of the bank concerned. This view should not be acceptable, given that customers may fill out applications at post offices and undertake banking transactions there,” reads the report.
It was further noted that fees and charges are usually displayed on bank websites in the form of a Pricing Guide that covers relevant products in broad terms but does not necessarily describe all fees by reference to the precise account type. An example given by the bank was that, the fees for savings and transaction accounts may be found under the broad grouping of “Savings or Other Accounts” and also in other sections relating to ATM charges, card fees, electronic services, and payment and clearing charges.
“Relevant fee information may be in the brochure, but it could be confusing for a consumer to understand exactly which fees apply to the specific type of account he or she has. Not all fees are included in brochures, which are mainly for advertising. Fees are also in different formats, which would make comparisons between banks difficult,” further reads the report. Again, there were examples of unclear, and potentially misleading, descriptions of fees and charges on websites and in sales brochures. Examples include: “Low monthly maintenance fee”; “Cost effective”; “Competitive”; References to “unlimited” ATM withdrawals, swipes, and point-of-sale (POS) purchases without mentioning other transaction fees that may apply; “Penalty-free withdrawals” without also disclosing the penalty that may apply in certain circumstances; References to “free” online or cellphone banking without mentioning the fees that might apply to receive online bank statements or online transfers. References to the customer’s ability to make transfers to linked accounts, without mentioning applicable fees. Some transactions that are described as “free” may be correct if there is no usage fee associated with the account but incorrect if the customer is paying an account-maintenance fee for the use of the account. References to “free cash deposits” might be perceived as misleading by new account holders if the references do not make it clear that the fees are free only because of a regulatory requirement that may change in the future.
Annual general meeting
In relation to building societies and savings and credit cooperative societies, the World Bank team discovered that there are no regulatory requirements that apply to SACCOS concerning disclosure of fees and charges, but the disclosure issues described above in relation to banks also apply to the only building society operating in Eswatini (SBS). It was observed by the World Bank mission team that the fees charged by SACCOs are agreed by members at their annual general meeting and are simpler in structure than bank fees. The two SACCOs interviewed charge an initial joining fee and an annual subscription fee. The mission team was told that other SACCOs have a similar approach. The mission team was told that these fees are explained to members when they join.
Key findings regarding non-bank Mobile Money Service Providers (MMSP) in relation to precontractual disclosure of fees and charges, the mission team discovered MMSP Practice Note requires MMSPs to display all fees and charges prominently. This must be done at the head office, all branches and places of business, and on websites. Agents also have to display all fees and charges prominently at their “premises” using a summary sheet provided by the MMSP. However, the mission team noted that it is not clear, however, if this requirement applies to agents who do not have physical premises (those working on the street or from markets).
The main concerns expressed about mobile money fees related to their confusing nature was the existing confusion about the payment of withdrawal fees by receivers of mobile money transfers when the sender had already prepaid the withdrawal fee on behalf of the receiver. “Many customers appear to be unaware that any subsequent withdrawal following a partial withdrawal of the received amount would attract a withdrawal fee, even if the withdrawal fee had already been paid. Several of the interviewees also believed that they were being charged multiple fees in a single transaction without being fully aware of what these charges were,” observed the mission team.
In this regard, the World Bank mission team recommended that as a medium priority, the rules concerning publication of fee information should be revised so as to require that information about fees and charges is published and made available to customers on a “per account type” basis. This information should be available on websites, in branches, and at agent’s premises, with prominent notices advising customers of its availability.
International good practices dictates that, to be able to make an informed choice about a savings or transaction account, customers should have easily available to them the interest rate(s) applicable to an account type they are considering (if any), how interest is calculated, and when it will be credited to the relevant account. According to the bank’s mission team, this information is especially important in the case of a time deposit, as the interest return will be a key part of any investment decision. In this case, customers should also have readily available the relevant interest rate tiers and the period to which each applies, as well as advice on how interest rate returns will be affected by an early withdrawal.
In light of this international good practice, the World Bank noted that, with very limited exceptions, banks do not appear to disclose publicly the interest-rate information required by the Banking Guideline. “In particular, applicable interest rates (in numerical terms) were not displayed in any of the branches visited. This information may be available on enquiry, but it is not publicly displayed as required. Actual rates were also not mentioned in any of the sales brochures and websites reviewed, with one exception where details of the rates applicable to each type of account are displayed on the bank’s website. One website also includes a potentially useful “fixed interest deposit calculator.” This calculator shows the applicable interest rate after inputting the amount to be invested, the term (in months), the frequency with which interest is to be paid out, and the estimated start date,” the mission team said.
Further, banks use a wide variety of inconsistent and confusing ways to describe interest rates on deposit products on websites and in marketing materials. Examples include “competitive interest rates”; “attractive interest rate”; “interest rates will vary according to contracted period”; “interest rates will also vary with principal sums deposited”; “monthly interest”; “interest calculated daily and paid into the product monthly”;
“tiered and competitive interest rates with an opportunity to earn a bonus interest”; “customer gets higher interest rate on higher balances”; “interest at competitive rates monthly”; “interest rates are subject to change, according to market forces”; “prime less x%”; “paid on maturity depending on account balance and term of deposit”; “interest is calculated daily on tiered interest rates and capitalized yearly”; and “tiered interest rates.”
“The result is that consumers are not likely to be able to compare time deposit products effectively or to understand the applicable interest rates and how they are calculated before they make a decision to open an account. Even if customers are told the rate that will apply on enquiry or account opening, they will not necessarily know when the interest will be debited to their account, or even if they have a choice as to which account it is debited to. This is of serious concern, especially in relation to time deposits,” the mission team observed. The global lender also noted that it is also not clear that banks are providing to customers the other information required by the Banking Guideline.
This include information about the manner of calculating interest, the manner in which time deposits will be dealt with at maturity, and early withdrawal charges for time deposits. It was also highlighted by the mission team that while some information is available on the websites of some of the banks regarding frequency of interest paid and early withdrawal charges on fixed deposits, information about how time deposits will be dealt with at maturity is not clearly laid out on websites or in sales brochures for many of the time deposit products.
For several of the products, the World Bank noted that the language on the websites suggest that there “may” be a rollover, or that the principal and interest amount “may be” paid into a transaction account on maturity, but there is no clarity on the steps to be taken for one course of action or the other. The mission team observed that this information was not included in any of the standard terms and conditions reviewed. “In some cases, term deposits are described as “automatically renewable,” but no information is provided on the mode of calculation of interest on rollover of deposits,” the mission team said.
The mission team highlighted the fact that although the Central Bank of Eswatini (CBE) Order provides it with power to make rules concerning disclosure of interest rates and applicable methods of calculation, this power has not been exercised. In particular, CBE has power to prescribe rules concerning the manner of disclosure to the public and each depositor of the “effective annual interest rate” payable in respect of deposits.