The Protection of Consumers of Banking Products and Services in the CEMAC Area
The Protection of Consumers of Banking Services, Guaranteed Minimum Free Banking Services, Banking Terms and Conditions, and Usury Rules within the CEMAC Area
Barrister Ferdinand Doh Galabe, Esq.
The first regular institution resembling what we call a bank today, was established at Venice, nearly nine hundred (900) years ago, although the banking business as it is conducted today was not necessarily what was contemplated at the time. As a matter of fact, it was a time of war and the need was felt to contract a loan from financiers to fund the war.
The mechanisms set in place eventually mutated into today’s banking business and Venetian merchants began to resort to the services of the public entity formerly employed to manage the war loan, mainly for the safe-keeping of their moneys, and thus was pioneered the business of deposit. Prior to that, and in the course of discharging its office, that entity had gained traction in the business of banking by lending money upon mercantile paper and building for itself a good reputation. This ultimately spun into the precursor of modern commercial banking.
What was started in the 12th C long remained without a competition until about the 15th C when similar institutions were established in two other very prominent European cities; Genoa and Barcelona. A Bank was later established in the city of Amsterdam which emerged by the 17th C as the most prominent centers of trade in the world.
The original subscribers to the Bank of Amsterdam paid into its vaults certain sums in the current coin, for which they received a credit on its books equivalent to the intrinsic value of the deposit. These credits were known as bank money; and it was enacted by the legal authorities, that all payments of bills of exchange exceeding six hundred guilders in value, should be made in this bank money, which was equivalent to, and which represented, the standard coin of the city of Amsterdam.
The Bank of Amsterdam sold bank money to all who wished to purchase, at a premium varying with the market price. It also sold current coin, when it was needed for exportation, upon receiving an equivalent transfer of bank money. It received coin and bullion upon deposit on the following terms. When the coin or bullion was deposited, a certain sum of bank money was transferred to the account of the depositor, equivalent to the current value of the coin or the mint price of the bullion, with a small deduction varying according to circumstances.
At the same time a receipt was issued to the depositor, entitling him or any bearer, to withdraw the coin or bullion from the bank at any time, within six months from the date of the receipt, first transferring to the bank, the same sum of bank money which had been granted to the depositor, and paying a commission for the keeping, of one quarter per cent for coin and silver bullion, and one half per cent for gold bullion. If the deposit was not demanded within six months, it became the property of the bank. The profits of the bank were made by these commissions, and by the premium it obtained on the sale of coin, bullion, and bank money. Banks on the same principle with the Bank of Amsterdam were afterwards established at Hamburg, and some other of the commercial towns and free cities of Germany (See Richard Hildreth, “The History of Banks”, first published 1837, Economic Classics).
The banking business developed to its apex with the Bank of England chartered in 1694 before purportedly bearing after its kind all over the world. Today the regulation of banks is essential for a variety of reasons, including the protection of consumers of banking services and products. William Shakespeare’s 16th C play titled “The Merchant of Venice” which portrays Shylock, a ruthless moneylender, reminds us of the importance of putting banks and financial institutions in check for fear of allowing them claim “a pound of flesh” from consumers of banking services.
In the CEMAC area, a somewhat robust legal and institutional framework is in place to ensure compliance with rules avowed to be protective of consumers of banking services and products. These range from transparency concerning banking terms and conditions, fairness, the freeness of earmarked services, anti-usury rules, etc.
Guaranteed Minimum Banking Services (GMBS)
The first of these is the Guaranteed Minimum Banking Services (GMBS) known in French as Service Bancaire Minimum Garanti (SBMG). It is a list of banking services and products that are mandatorily free of charge to consumers of banking products and services as provided by CEMAC Regulation no 01/20/CEMAC/UMAC/COBAC of July 3, 2020 on the protection of consumers of banking products and services in the CEMAC area.
Article 5 of the above-mentioned regulation on the protection of consumers of banking products and services in the CEMAC area provides that, “every bank or credit institution is obliged to offer free of charge within the scope of its authorized operations, guaranteed minimum banking services to consumers of banking products and services…the gratuity of these banking products and services is not subject to any preconditions. Bank and credit institutions are free to charge products and services which are not covered by this provision, subject to compliance with regulations in force.”
Although the above Regulation on the protection of consumers of banking products and services in the CEMAC area does not list out the banking products and services that are mandatorily free of charge, this was exhaustively addressed in COBAC Regulation R-2020/04 of July 30, 2020 relating to Guaranteed Minimum Banking Services. In the case of Cameroon, this instrument was preceded by an instrument of the Minister of Finance referenced Order no 00005/MINFI of January 13, 2011 instituting Guaranteed Minimum Banking Services. Two years after the entry into force of this order, a study conducted by the Banking Commission of Central Africa (COBAC) concluded that several banks and credit institutions did not comply with this 2011 Order.
This 2011 Order which instituted in Cameroon a list of guaranteed (free of charge) minimum banking services defined it as the minimum services provided by banks free of charge to any consumer of banking services and products, including fifteen (15) services, namely:
1 – the opening of a bank account,
2 – the issuance of a bank identity statement (relevé d’identité bancaire or RIB),
3 – the issuance of check booklets,
4 – the issuance to account holders of cash withdrawal forms at the counter,
5 – the issuance of savings booklets,
6 – payment by bank cards to Cameroon based businesses,
7 – on the spot checking of bank account by account holder,
8 – issuance of a certificate of non-indebtedness,
9 – payment by cheque,
10 – cash deposits in the branch offices of the same bank,
11 – cash withdrawals from the same bank,
12 – transfer of funds from one account to another within the same bank,
13 – ATM cash withdrawals of the cardholder’s bank,
14 – change of address,
15 – delivery/issuance on a monthly basis of a bank statement.
At the sub-regional level, the 2020 COBAC Regulation “replaced” the 2011 Order and provided a longer list of twenty-two (22) banking products and services that are mandatorily free of charge. Article 2 of the above-mentioned COBAC Regulation provides that, “the minimum banking services guaranteed to consumers of banking products and services as provided by Article 5 of CEMAC Regulation no 01/20/CEMAC/UMAC/COBAC of July 3, 2020 on the protection of consumers of banking products and services in the CEMAC, include the following:
1 – opening a bank account,
2 – holding or keeping a bank account,
3 – changing identification elements of the bank account holder’s file,
4 – issuance of a bank identity statement (relevé d’identité bancaire or RIB),
5 – where applicable, the issuance of a savings booklet and its renewal,
6 – free checking of the bank account at any of the branch offices of the bank or credit institution,
7 – the checking of the balance at ATMs by the cardholder,
8 – electronic debit or credit notices,
9 – issuance of soft or hard copy of bank statement once every month,
10 – issuance once every year to the customer and upon his/her own request of a summary of costs and operations recorded in his/her account during the previous calendar year not resulting from the customer’s instructions,
11 – issuance to the customer by the bank of a certificate of non-indebtedness every year and upon the closure of the bank account,
12 – bank domiciliation of a customer’s salary account,
13 – cash payments at branches of the bank or credit institution,
14 – issuance to account holders of withdrawal forms at the counter,
15 – the issuance to account holders of fifty (50) check forms per year in the branch offices of the bank,
16 – cash withdrawals at the branch offices of the bank,
17 – cash withdrawals by cardholders at ATMs of the bank,
18 – payment by bank cards within the CEMAC region,
19 – payment by cheque,
20 – cashing of cheques drawn on a bank within the CEMAC region,
21 – bank transfers from one account to another within the same bank, and
22 – cashing of national, sub-regional and international bank transfers ”
Although in principle this COBAC Regulation on Guaranteed Minimum Banking Services (GMBS) entered into force on January 1, 2021, banks and microfinance institutions who were already in operation on the date of entry into force of the Regulation still enjoy a transitional period of 24 months (January 1, 2023) to comply with the provisions of this Regulation. In other words, as far as Cameroon is concerned, the 2020 COBAC Regulation technically replaced the 2011 Ministerial Order, but did not enter into force immediately, thus carrying forward the 22 GMBS obligations of banks and microfinance institutions under the 2020 COBAC Regulation to January 1, 2023, while suspending their 15 GMBS obligations under the 2011 Ministerial Order.
Needless to say here that after these law reforms, the position of consumers of banking services was significantly worse off, at least during the transitional period, besides the fact that an entry barrier to new banks was elevated since banks which are licensed after January 1, 2021 must immediately comply with the GMBS obligations while their competitors who have been in the business prior to January 1, 2021 are in a 2 years transitional period and have up to January 1, 2023 to begin to comply with the COBAC GMBS obligations. This results in an unfair competition situation created by law resulting in the old players having an unfair advantage over new players/competitors. It is interesting that there is a law in force in the CEMAC area relating to competition referenced Regulation n°06/19-UEAC-639-CM-33 of 7 April 2019 on competition. This unfair advantage may, however, be a doubled-edged sword as it may simply pull clients towards new players who are obliged to comply with the GMBS obligations laid down in the 2020 Regulation.
The avowed purpose of the above-mentioned 2019 Regulation on competition, which is inspired by Articles 23 to 25 of the UEAC (Economic Union of Central Africa) Convention, is to prohibit commercial practices which restraint trade and competition within the area, including acts by public persons which are liable to distort competition by favoring certain enterprises. The Convention promotes the free play of the market by controlling or eliminating anti-competitive practices which have the object or effect of prejudicing trade within the Union, or undermining the development of CEMAC and consumer welfare.
Article 78 of Regulation n°06/19-UEAC-639-CM-33 of 7 April 2019 on competition expressly provides that, “Public aid likely to distort competition by favoring certain undertakings or the production of certain goods is prohibited by virtue of Article 23 c) of the above-mentioned Convention governing the Economic Union of Central Africa.”
That said, during this two years transitional period, microfinance institutions must offer to their customers free of charge the following six (06) banking products and services:
1 – opening a bank account,
2 – changing identification elements of the bank account holder’s file,
3 – free checking of the bank account at any of the branch offices of the microfinance,
4 – issuance of soft or hard copy of bank statement once every month,
5 – issuance to the customer by the bank of a certificate of non-indebtedness every year and upon the closure of the bank account, and
6 – bank domiciliation of a customer’s salary account.
Likewise, during this period of transition, banks must offer to their customers free of charge the following thirteen (13) banking products and services from January 1, 2021, down from fifteen (15) under the 2011 Ministerial Order:
1 – opening a bank account,
2 – changing identification elements of the bank account holder’s file,
3 – issuance of a bank identity statement (relevé d’identité bancaire or RIB),
4 – where applicable, the issuance of a savings booklet and its renewal,
5 – free checking of the bank account at any of the branch offices of the bank,
6 – issuance to the customer by the bank of a certificate of non-indebtedness every year and upon the closure of the bank account,
7 – cash deposits at the branch offices of the bank,
8 – the issuance to account holders of fifty (50) check forms per year in the branch offices of the bank,
9 – cash withdrawals at branch offices of the bank,
10 – the issuance to account holders of withdrawal forms at the counter,
11 – cash withdrawals by cardholders at ATMs of the bank,
12 – payments by cheque, and
13 – bank transfers from one account to another within the same bank.
Where a credit institution refuses to provide these GMBS, the consumer of banking services may submit a request accompanied by supporting documents to the Arbitration Commission which has been set up to settle disputes between credit institutions and customers. This can be done only after the customer has first sent a request to the credit institution in question, which must within a maximum of 30 days reply to the customer.
The Overall Effective Rate, the Repression of Usury and the Publication of Banking Terms and Conditions
On top of these GMBS rules and to further protect consumers of banking products and services within the CEMAC area, the above-mentioned 03 July 2020 CEMAC Regulation on the protection of consumers of banking products and services in the CEMAC obliges banks and microfinance institutions to be transparent and inform their customers on the terms and conditions of the provision of banking services and products, as adopted in the UMAC Ministerial Committee’s Regulation no 04/19/CEMAC/UMAC/CM of August 10, 2020 on the overall effective rate, the repression of usury and the publication of banking terms and conditions in the CEMAC area.
Pursuant to the above December 20, 2019 Regulation, the overall effective rate is defined as the total cost of credit to the borrower expressed as a percentage to two decimal places. The average overall effective rate (OER) to public bodies and sub-national public entities within the CEMAC region went down to 13.47% in December 2019 from 19.07% in September 2019. The rate was 11.7% for SMEs in Cameroon in December 2019 (for investment borrowing). The computation of this rate includes the bank interest rate, filing fees, insurance premiums, where applicable, tax registration of loan agreement, costs of setting up a security where required by the credit institution, commissions paid to intermediaries and any other commissions. The law requires that borrower and lender should agree on this rate prior to entering a loan agreement and that anticipated changes to these rates and fees must equally be embedded in the loan agreement. The rate must be expressly stated in the agreement between a bank and its customer relating to the opening of an account with an overdraft facility, although failure to do so or the indication of an erroneous rate does not render the agreement null and void. That said, the bank must catch up on its error or omission within 72 hours following its realization of its error or omission.
Be that as it may, the bank is obliged to communicate in writing, prior to the signature of the loan agreement, the rate applicable under the loan agreement or overdraft facility, detailing all its different components, in a manner or form that is clear and easy to understand.
On the heels of Article 11 of the August 10, 2020 Regulation, on June 22, 2021, the Governor the Central Bank of Central African States (BEAC) issued Instruction no 003/2021 laying down the procedures for determining, reporting and publishing the overall effective rates, for publishing banking terms and conditions and prices of financial services.
Banking terms and conditions in a nutshell relate to pricing rules established by banks to govern operations with customers, including in exceptional circumstances. These pricing rules include: the credit and debit rate applicable to operations with the bank’s customers, commissions charged by the bank within the framework of operations with the bank’s customers, fees and commissions charged for insurance services, fees charged for other services offered by the bank, reference thresholds for usurious interest rates, and mandatory deductions made for the benefit of the state or other public institutions.
The law requires banks to publish on a quarterly basis as well as immediately after any changes are made thereto, their banking terms and conditions. The publication is made in a journal empowered to publish legal notices. These banking terms and conditions are equally permanently affixed/posted at the premises of the branch offices of the bank, its counters, as well as on its website following strict guidelines laid down by the Banking Commission (COBAC).
Failure to comply with these rules is punishable with penalties of up to 3 million FCFA fixed by the Central Bank. Breaches to these rules include failure to communicate the overall interest rate (OER), communication of an erroneous rate, failure to publish or post banking terms and conditions in the prescribed manner, etc.
Defining Usury and the OER
By way of introduction to the CEMAC anti-usury policy, Article 3 of CEMAC Regulation no 02/CEMAC/UMAC/CM of 2 October 2012 on the definition and repression of usury within the member states of CEMAC repealed by Regulation no 04/19/CEMAC/UMAC/CM of August 10, 2020 on the overall effective rate (OER), the repression of usury and the publication of banking terms and conditions in the CEMAC provides that, “constitutes a usurious loan, any loan or agreement concealing a loan of money granted, in any matter and by any person, at an overall effective rate which exceeds, at the time it is granted, by more than 33%, the average overall effective rate charged during the previous six-month period by credit institutions for transactions of the same nature involving similar risks”. This was the previous standard that was laid down as far as usury is concerned.
Article 15 of Title III of the new Regulation no 04/19/CEMAC/UMAC/CM of August 10, 2020 which lays down the rules relating to usury defines usury as, “any loan or any agreement/contract dissimulating a loan, irrespective of its nature and the contracting parties thereof, which bears an overall interest rate which is higher than the usury rate fixed by the Monetary Policy Committee of the Central Bank”. Sales transactions with payment facilities are assimilated to loan transactions as such must comply with these usury rules.
The usury rate which is fixed for each CEMAC member state, and for each category of credit institution is determined by the Monetary Policy Committee of the Central Bank on a quarterly basis, depending on the category of loan and the nature of the borrower (central state, sub-national state entity, commercial company, physical person, etc.). It is published in the CEMAC official gazette, in journals empowered to publish legal notices in each member state and published on the Central Bank’s website.
The Central Bank equally notifies these fixed usury rates to various National Economic and Financial Committees which transmit the rates to banking institutions which must then publish/post them at the counters of their premises and through other appropriate means.
The usury rate for natural persons is fixed taking into consideration market conditions and consumer protection issues at stake. All usury rates must be published in the national/official gazette of each CEMAC member state at the initiative of the local National Credit Council. Each time a consumer requests a loan from a bank, the latter is obliged to notify the borrower in writing of the usury rate applicable to the loan category requested.
Under Title III of the above Regulation, for each category of loan and borrower, other than loans granted to natural persons, the usury rate in each member state is equal to the national average overall effective rate (OER) of the previous quarter, plus a given number of basic points determined by the Monetary Policy Committee.
On May 21, 2021, Cameroon’s National Economic and Financial Committee circulated a communiqué relating to the overall effective rate and the usury rate applicable to banks as partially illustrated in the table below. To access the full communiqué in French, go to: < https://www.conseilnationalducredit.cm/images/tele/arretes/TEG_et_TU_premier_semestre_2021.pdf >
|Category||Average OER (%)||Usury rate (%)|
|1 – Physical persons|
|Consumer loans other than overdrafts||12.10||16.13|
|Middle term loans other than real estate loans||12.24||16.32|
|Short-term loans other than real estate loans||11.74||15.65|
|Real estate loan||11.79||15.72|
|Hire-purchase (financial leasing) loan||12.07||16.09|
|2 – SMEs|
|Cashflow loans other than overdrafts, commercial bills, and factoring||12.55||16.73|
|Middle term loans||14.29||19.05|
|Hire-purchase (financial leasing) loan||14.08||18.77|
|3 – Large Enterprises|
|Cashflow loans other than overdrafts, commercial bills, and factoring||5.94||7.92|
|Middle term loans||8.94||11.92|
|Hire-purchase (financial leasing) loan||9.75||13.00|
|4 – Legal Persons Other than SMEs & Large Enterprises|
|Cashflow loans other than overdrafts||7.68||10.24|
|Middle term loans other than real estate loans||8.85||11.80|
|Long-term loans other than real estate loans||7.03||9.37|
|Real estate loans||9.11||12.15|
|Hire-purchase (financial leasing) loan||17.51||23.35|
|5 – Central government & sub-national entities|
|Cashflow loans other than overdrafts||15.72||20.96|
|Middle term loans||7.99||10.65|
|Hire-purchase (financial leasing) loan||12.66||16.88|
According to Article 20 of Title III of the above Regulation, “in the case of loans of money on foodstuff or other movable property, and in sales or swap transactions on credit, the value of the things handed over or the price paid by the debtor in principal and accessory may not exceed the value of the things received by an amount corresponding to the rate of usury applicable to credit transactions of the same nature involving similar risks.” This provision does not apply to stock exchange transactions or those on financial products.
Where a loan is deemed usurious, the sums unduly collected under the usurious loan agreement are imputed (set-off) as of right, on the nominal interest and, for the surplus, if any, on the capital of the principal of the loan itself. Where the loan and interests have been fully paid, the sums unduly collected must be restituted with interest at the legal interest rate calculated on the day when they are effectively restituted.
The majority of consumers of banking services and products are ignorant of the existence of these rules, and even when they are aware of them, they do not know how to go about to ensure that their banker complies with these rules. Some credit institutions are not always conversant with these rules and usually ignorantly trample them underfoot, while others know them but violate them deliberately. But ignorance of the law is not an excuse before a court of law.
There are penal implications to violating these rules. A case in point is Section 325 of the Cameroon Penal Code which punishes usury and provides as follows, “any lender demanding or taking interest or any other reward higher than the rate fixed by law for loans of the kind in question shall be punished with fine of from FCFA 5000 to FCFA 1 million. On subsequent conviction within the meaning of Section 88 of this Code, the penalty shall be imprisonment for from 15 days to 1 year and the fine shall be doubled. The court may order the publication of its judgment under Section 33 of this Code. For the purposes of this Section, the borrower may not be treated as an accessory.” Bear in mind that the 2016 amendment of the Cameroon Penal Code instituted corporate criminal responsibility, such that juristic persons, such as banks, are now criminally responsible before courts of law in the same manner as physical persons.
More severe punishment for usury is provided by Article 32 of Regulation 04/19/CEMAC/UMAC/CM which provides for criminal sanctions of one (01) to six (06) months of imprisonment and/or fine of from FCFA 100,000 to FCFA 100 million imposed on persons (natural or juristic) who for themselves or on behalf of another person grant a usurious loan. In case of conviction of corporate/artificial persons, the punishment of imprisonment is swapped with that of a fine of from 1 million FCFA to 500 million FCFA (Section 25-1 (3) Penal Code).
This article is authored by Ferdinand Doh Galabe, Advocate of the Cameroon Bar Association, and Managing Partner of Dayspring Law Firm. The information in this article is provided for informational purposes only, and should not be confused as legal advice on any matter. For proper legal advice, we recommend that you contact us directly (firstname.lastname@example.org or call +237 243 807 359) or request legal advice from your legal counsel.
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