A bank is a financial institution which is involved in borrowing and lending money. Banks take customer deposits in return for paying customers an annual interest payment and it then uses the majority of these deposits to lend to other customers for a variety of loans. The difference between the two interest rates is effectively the profit margin for banks. Banks play an important role in the economy for offering a service for people wishing to save and they also play an important role in offering finance to businesses who wish to invest and expand. These loans and business investments are important for enabling economic growth.
The relationship between a bank and a customer is complex and it is not always clear what duties each party owes to the other. Generally, the bank owes the customer a duty of care, meaning that the bank must use reasonable care and skill while conducting business concerning the customer, but other duties exist as well.
To assist in understanding, here are some responsibilities of banks to their customers:
1. Handling Account Withdrawals
When a customer deposits money into the bank, this money is on loan to the bank and the bank’s most important obligation is to follow the customer’s instructions in relation to this money. The customer can withdraw money from the account at any point, and they can also stop payment of a cheque by informing the bank. If an overdraft agreement is in place, the bank must also give reasonable written notice of any decision to reduce overdraft credit.
2. An Obligation to Honor Cheques
It is statutory obligation of the bank to honor the cheques to his customers up to the amount standing to the credit of customer’s account. Bank has to compensate the customer, if it refuses to honor the cheque.
3. Providing Account Statements
Banks must provide customers with account statements, either on a regular basis or upon request. Account statements are understood to be the “true state” of the account, but they can be challenged by the bank or the customer. Normally, a customer does not have to examine the statements and report errors to the bank. If the bank did take money from the account due to a forged cheque, it would be liable for the amount deducted. However, the bank and customer may enter into a verification agreement, which means that the customer agrees to verify the correctness of the statements.
4. Giving Notice before Closing the Account
A bank cannot close the customer’s account without giving him a reasonable notice, even if the bank has serious consequences to the customer.
5. Follow Customer’s Instructions
It is a legal obligation of the bank to follow instructions given by the customers because a contractual relationship exists between bank and the customer. If the customer has not given any instructions, the bank should act as per rules and regulations.
6. Maintain Secrecy
The relationship between a bank and a customer is confidential, meaning that banks should not reveal the details relating to the customer’s account to any outsider or unknown person because such details if revealed can affect the business of the customer. If a customer consents, the bank can answer general questions about their position and character to a third party who is considering doing business with the customer. In this case, the bank can only be held responsible for false or fraudulent answers if they are in writing and signed by the banker.
In certain circumstances, the bank may disclose customer information without the customer’s consent for either the bank’s protection or where there is a danger to the public. This duty to the public includes disclosing information about misrepresentations by the customer, even if they do not amount to fraud.
The bank may also be compelled to disclose information by law; however, it is required to inform the customer of any subpoenas or legal compulsion. If the bank breaches the duty of confidentiality without proper consent or legal compulsion, the customer may take legal action against the bank for negligence.Featured Image Source: Smart Capital Mind
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