An attorney acting pro bono for 29 Absa clients who are victims of online banking fraud has taken his fight to the Financial Sector Conduct Authority after reaching a deadlock with the ombudsman for banking services over the handling of his cases by the bank and the ombudsman.
The FSCA (formerly the Financial Services Board) is a statutory regulator and since April 1 has been responsible for regulating banks' market conduct.
Until now, the only entity dealing with complaints about the market conduct of the banks was the ombudsman, which was established by the banking industry to regulate itself.
Mark Heyink, who specialises in information security law, has asked the FSCA to investigate the conduct of Absa in its dealings with victims of online banking fraud and to investigate the ombudsman for its alleged failure to properly apply the law when dealing with these complainants.
Internet banking fraud is on the rise and complaints relating to internet banking were the biggest category of complaints to the ombudsman last year.
The ombudsman closed 1377 such cases last year, 77% of which related to cellphone banking and phishing fraud. The ombudsman found in favour of the banks in 77% of cases and in favour of consumers in 23% of cases, according to the ombudsman's latest annual report.
Heyink says Absa and the ombudsman are not dealing fairly with victims of internet banking fraud. He says consumers are at an enormous disadvantage in protecting their rights when dealing with their bank after they have suffered losses as a result of online banking fraud.
Under duress
"The details of the frauds are peculiarly within the knowledge of Absa, which is reluctant and, at best, tardy, in providing information to clients. Absa also emphasises to clients that they must have been subjected to a phishing expedition to obtain their banking details and strongly implies that the client must have acted negligently even when there is no evidence of negligence on the part of the client," says Heyink.
But Absa claims that when fraud takes place an investigation is "always" conducted and what is communicated to customers is based on its findings.
Fifteen of Heyink's Absa clients accepted settlement offers made by the bank - all of which were for 50% of the amount stolen - yet in five cases, clients were not provided with forensic reports establishing their negligence, Heyink says.
"All of those who accepted settlement offers say they did so under duress, with the offer on the table for seven working days only, after which it lapses.
"The offers are made on a confidential, ex gratia, one-off basis. And once you've accepted it, the bank considers you to have accepted its finding that you are at fault and the case is closed."
Phumza Macanda, the head of media relations at Absa, says unless Absa knows which cases are being referred to, it can't respond to the alleged failure to furnish customers with forensic reports.
Macanda says Absa does not put pressure on clients and believes that a week is a reasonable time for a client to decide whether to accept a settlement.
The ombudsman rarely gets complaints from customers who have accepted settlement offers. Most of the complaints are from those who refuse the settlement offer, where one is made, or refuse to accept the bank's finding that they are at fault.
Expert testimony
Heyink has tried in vain to persuade banking ombud Reana Steyn to allow for a review of the decisions taken by the ombudsman against some of his clients.
Steyn says only a determination by the ombudsman can be taken on review. The matters Heyink wants reviewed were "assessments" by the ombudsman that indicate no reasonable prospect of a finding in favour of the consumer.
She says Heyink's view that the ombudsman has unfairly and without proper consideration come to the wrong conclusion is regrettable.
In a 2016 test case, a judge found the ombudsman is an alternative dispute resolution body and not a court of law, says Steyn.
The judge also said that for banks to be held liable, negligence needs to be proved in court, where expert testimony can be heard and witnesses cross-examined.
Litigation too costly
Yet, as Heyink has pointed out, when the ombudsman informs complainants of its decisions, it categorically attributes negligence to bank clients in stating: "The evidence leads us to conclude that you were indeed negligent in the compromise of your confidential internet banking access details."
Some letters by the ombudsman state that the client's confidential banking credentials were "placed in the hands of the criminals by you, not the bank".
Steyn says in the matters dealt with by the ombudsman, the evidence led to a conclusion, on a balance of probabilities, that the complainants were victims of phishing, and, as a result of disclosing their confidential PINs and passwords, they suffered a loss.
"In some instances, the complainants acknowledged receiving an e-mail purporting to be from the bank and acknowledged that they disclosed their PIN and passwords," says Steyn.
On the evidence presented, there was no proof of wrongdoing on the part of the bank, hence there was no basis to make a finding against the bank.
The line of investigation that Heyink expects of the ombudsman is "outside our mandate and better suited to a court of law", she says.
But litigation is beyond the means of most consumers, says Heyink, and the banks rely on the fact that litigation won't ensue.
Heyink estimates that it has cost him about R1-million over the past two years to make representations to the bank, the ombudsman and now the FSCA...