Banks must inform customers of failed fund transfers within ten minutes

A phenomenon that has accompanied the increased adoption of internet-enabled “smart” mobile electronic devices is that trade in goods and provision of services have now been adapted to be available to a wider audience using internet-enabled technology. Perhaps the sector which has reaped the most – visible and perceptible- benefits of internet and mobile electronic devices-based technology development is the FinTech sector. FinTech has now become a household name such that significant interest is invested in the fintech startup with a view to closing the payments gap by bringing in the ‘unbanked’ or something along that line – so as to become the next unicorn or probably the first decacorn in Africa. Fintech solutions have also been largely incorporated into the operations and services of typical commercial banks as part of the drive to reach and serve new customers irrespective of their circumstances and peculiar banking needs.

It appears that the continued growth of fintech solutions in banks and other financial institutions may suffer a little bump at best, or halt at worst. This would be the case if the decision which was delivered by the Competition and Consumer Protection Tribunal (the “Tribunal”) on July 13, 2023 in Application No. CCPT/OP/2/2022 – CLEMENT OSUYA v. STANBIC IBTC BANK PLC. (the “Stanbic Case”) is left undisturbed. Our concern for the continued development of fintech is hinged on the risk aversion and hesitance which banks and other financial institutions would be expected to adopt as a reaction to the decision of the Tribunal in the Stanbic Case.

Facts of the Stanbic Case

On Thursday, September 8, 2022, Mr. Clement Osuya, a lawyer with the intention of paying his children’s school fees, walked into the Maitama Branch of Stanbic IBTC Bank Plc. (the “Bank”) and having filled the required form(s), requested that the sum of Five Hundred Thousand Naira (N500,000.00) be transferred from the account which he held (and/or holds) in the Bank to the account which he held (and/or holds) in Access Bank Plc. (“Access Bank”).

Soon after Mr. Osuya’s request was processed, he was notified that his account with the Bank had been debited to the tune of the sum of Five Hundred Thousand Naira (N500,000.00) (per his request). Despite having been debited from his account with the Bank, the account which Mr. Osuya held (and/or holds) with Access Bank never received the corresponding credit. Rather, sometime the next day (that is Friday, September 9, 2022), the debited sum was returned to Mr. Osuya’s account with the Bank. Disappointed by the failed funds transfer, Mr. Osuya returned to the Maitama Branch of the Bank on Friday, September 9, 2022, and made the request (once again) that the sum of Five Hundred Thousand Naira (N500,000.00) be transferred from the account which he held (and/or holds) in the Bank to the account which he held (and/or holds) in Access Bank.

the Tribunal needs to protect consumers however there is the corresponding need to set the law correctly for the sake of precedence
Unfortunately, while the Bank processed the debit of the requested funds from Mr. Osuya’s Stanbic account, the corresponding credit to the Access Bank account could not be completed. Thereupon, before the debited sum was returned to Mr. Osuya on Monday, September 12, 2022, he allegedly took an interest-yielding loan and suffered some embarrassment as a result.

Mr. Osuya’s solicitor then issued a letter to the Bank demanding compensation for the losses and embarrassment he suffered due to the failed funds transfer and ‘tardy’ funds return. In responding to Mr. Osuya’s letter of demand, the Bank admitted that the two (2) attempts to transfer the funds, per Mr. Osuya’s requests, failed but insisted that said failure was not attributable to the Bank as the Bank processed the transfer but same was never transmitted to Access Bank (without any fault of the Bank). The Bank further explained that notwithstanding its non-culpability, the debited sums were returned to Mr. Osuya’s account timeously. The Bank then denied culpability for the embarrassment and/or interest-accruing loan which Mr. Osuya claimed he had to suffer on account of the failed transfers.

Aggrieved by the Bank’s response, Mr. Osuya approached the Tribunal for redress – and in so doing, prayed for an award of general damages (in the sum of Five Million Naira (N5,000,000.00)); exemplary damages (in the sum of Three Million Naira (N3,000,000.00); and cost of the action (in the sum of One Million Naira (N1,000,000.00)).

On its part, and in addition to arguing its innocence, the Bank objected to the right and power of the Tribunal to adjudicate on the matter.

Analysis of, and Comments on, the Decision of the Tribunal

Before highlighting the details of the decision of the Tribunal, it is important to highlight the composition of the panel of the Tribunal that heard and determined the Stanbic Case. By virtue of Section 48(3) of the FCCPC Act, the Tribunal (when called upon to determine a case before it) would be composed of three (3) members thereof – one of whom must be a legal practitioner. In the Stanbic Case, the Tribunal was composed of a three (3) man panel, to wit, Mr. Chuma Mbonu (a legal practitioner, who presided over the panel), Mrs. Sola Salako-Ajulo, and Mr. Ibrahim Yakubu.

The Tribunal (in a 2:1 majority decision), found that the Bank had contravened Articles 5.2(8) & (9) of the Central Bank of Nigeria’s Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services in Nigeria dated July 2018 (the “Regulation”) and as such the Bank also breached Section 130 (1)(a) of the FCCPC Act.

In effect, the Tribunal held the majority view that by a joint reading of the above-cited provisions of the FCCPC Act and the Regulation, the Bank had a duty to timeously complete the funds transfer which Mr. Osuya requested and that where such timeous completion was unavoidably delayed, the Bank had the duty to notify its customer – Mr. Osuya in this case – timeously. The Tribunal then, suo motu, interpreted ‘timeously’ to mean ‘within ten (10) minutes of return of the funds from Access Bank’ as provided under Article 5.2(8) of the Regulation. Our comments on the Tribunal’s application of the Regulation are further discussed below.

Having found that the Bank had breached the provisions of the FCCPC Act and the Regulation, the Tribunal proceeded to determine the extent of compensation to be given to Mr. Osuya. The Tribunal held the majority view that Mr. Osuya had not suffered any real damage, injury nor loss and as such, was not entitled to general nor exemplary damages. Notwithstanding the foregoing, the Tribunal went ahead to award Mr. Osuya Five Million Naira (N5,000,000.00) as general damages as well as One Million Naira (N1,000,000.00) as cost of the case.

In an unprecedented turn of events, and despite not having been expressly sought by the Applicant, the Tribunal enforced the provisions of Section 155 of the FCCPC Act which deems the contravention of consumer rights to be an offence punishable by fine of at least One Hundred Million Naira (N100,000,000.00) or at least ten percent (10%) of its preceding annual turnover – whichever is higher. The Tribunal then deigned to slam the Bank with a fine of One Hundred and Twenty Million Naira (N120,000,000.00) – payable to the Tribunal – for the breach of the consumer rights of Mr. Osuya.

We, most humbly, disagree with the majority decision of the Tribunal for the reasons highlighted hereinbelow.

Jurisdiction

Most respectfully, we agree with the dissenting/minority decision of the presiding member of the panel, per Mr. Chuma Mbonu, that the Tribunal did not have the jurisdiction to entertain nor adjudicate upon the Stanbic Case at all in the first instance.

The provisions of Section 47(1)(a) and 47(2) of the FCCPC Act are instructive on this point and leave no room for doubt. The jurisdiction of the Tribunal is wholly appellate and can only be invoked in respect of appeals against the decisions of the Federal Competition and Consumer Protection Commission (the “Commission”). A more common parallel is the relationship between the Investments and Securities Tribunal (IST) and the Securities and Exchange Commission (SEC). By the provisions of Section 17(h) and (l) of the FCCPC Act, it is the Commission that has the power and jurisdiction to entertain and adjudicate upon the Stanbic Case as well as to issue whatever sanctions (which, under the FCCPC Act, may include fines and for natural persons terms of imprisonment) are provided under the law.

It is therefore believed that should the Bank proceed on appeal the Court of Appeal may likely align with and uphold the dissenting decision of Mr. Mbonu and set aside the majority decision of the Tribunal.

Substance

While we hold the view that the Stanbic Case ought to be overturned on appeal as legal practitioners and unofficial amici curiae of the Court of Appeal, we will proceed to provide our opinion on the substance of the decision of the Tribunal.

Strictly speaking the service which Mr. Osuya sought from the Bank is the transfer of funds from his Stanbic account to his Access Bank account. At both attempts, the Bank timeously performed its obligations (by debiting Mr. Osuya’s account and doing the needful under the Nigeria Inter-Bank Settlement System Plc. (“NIBSS”) platform). There was no such delay and as such, we hold the view that there was no breach of the provisions of Section 130 of the FCCPC Act.

The NIBSS platform is the national central payments switch and it is responsible for the interoperability between the various players in the financial system. Interoperability involves the ability of the various players, such as: Banks, Mobile Payment Operators, Non-Banking Financial Institutions, Payment Terminal Providers, Card Acquirers, Government Institutions etc., and their customers, to send, receive and process funds, documents and other instruments electronically through a common channel.

Therefore, having processed the removal of the funds from Mr. Osuya’s Stanbic account for onward transmission to his Access Bank account, the only outstanding responsibility which the Bank had to Mr. Osuya as a consumer of its services – under the Regulation – was to timeously return the funds to Mr. Osuya on return of the funds from the receiving bank or on closure of settlement.

However, given that it was already shown that the funds were never transmitted to Access Bank, assessment of a delayed refund of Mr. Osuya’s funds ought to be in light of Article 5.2(9) of the Regulation – that is one (1) hour after close of settlement. Further to Article 8.1.1 of the Regulation, and as is the practice with Nigerian commercial banks, settlement of transactions done on a day are concluded on or before the end of the next working day. At both instances where funds were removed from Mr. Osuya’s Stanbic account – on his instruction, they were immediately returned upon completion of settlement (i.e., the next working day). There was not a one-hour delay (which is permissibly under the Regulation) so it is incomprehensible how the Bank could then be construed as having returned Mr. Osuya’s funds tardily.

Further, the Bank’s service was to process the debit of the funds from Mr. Osuya’s Stanbic account and to process the interbank transfer on NIBSS – a platform that the Bank has no control over. This the Bank did timeously (that is immediately at the close of settlement on the following working day) and as such, in our view, there was no contravention of Mr. Osuya’s consumer rights. Further, it is our view that the Regulation, though inapplicable in the context of the peculiar facts of this case, ought not to have been applied by the Tribunal without inviting an address by the parties or their respective Counsel, seeing that same was never pleaded by Mr. Osuya.

We concede that there is a need for consumers to rise and for the Commission (and thereafter, the Tribunal) to protect consumers from unscrupulous service providers as there is an increase in ’what I ordered versus what I got’. That said, there is however the corresponding need to follow due process and to set the law correctly for the sake of precedence and/or for the sake of justice.

Thus, other customers of the Bank and other commercial banks should not have any reason to be overly excited by the Stanbic Case as the decision therein is highly unlikely to be followed in subsequent cases – especially in law courts – unless delay under the Regulation can be correctly and sufficiently proven.

Adedoyin Afun is a Partner with Bloomfield LP – experience includes corporate & commercial and banking & finance advisory as well as disputes.

Chidiebere Ironuru is an Associate in the Dispute Resolution practice group at Bloomfield LP – experience includes disputes in banking and finance, real estate, labour, and admiralty matters.