A Legal Analysis of the CBN Global Standing Instruction Policy -U. S. Odigbo [Miss] Esq.

In 2019, the Central Bank revealed plans of a collaboration with the Nigeria Inter-Bank Settlement System (NIBSS) and the Bankers’ Committee to launch an initiative allowing lenders to recover loans from deposit accounts of loan defaulters from any bank or financial institution in the country. This was a process that started in May 2019 by the bankers committee “declaring war” on non-performing loans.

The Bankers’ Committee at its 345^th meeting held on the 26^th of August 2019 resolved that banks shall have access and utilize deposits of defaulting customers across the banking industry to regularize their nonperforming facilities.

Questions have arisen as to the legality of this venture by the CBN. Thus, this article analyzes the Global Standing Instruction (GSI), the powers of CBN to make same and the legality of the phrases to be added to loan agreements on the instruction of the CBN,

CBN powers/ legal basis of the circular

The CBN Act provides the objects of the CBN. In Section 2 of the Act, it is stated thus:

The principal objects of the Bank shall be to –

(a) ensure monetary and price stability;

(b) issue legal tender currency in Nigeria;

(c) maintain external reserves to safeguard the international value of the legal tender currency;

(d) promote a sound financial system in Nigeria; and

(e) Act as banker and provide economic and financial advice to the Federal Government.

The power of CBN to make regulations regarding and relating to other banks is contained in Section 51 of the CBN Act and Section 57, Banks and Other Financial Institutions Act (BOFIA). These Sections provide the authority of the Central Bank to make regulations for all other Nigerian Banks which it believes will promote or secure any of the objects listed above. The policy is to promote a sound financial system and enhance loan recovery across the Nigerian banking sector.

It is in furtherance of these powers that the Central Bank made the Guidelines on Global Standing Instructions (individuals). The GSI is aimed at facilitating an improved credit repayment culture, reducing non-performing loans in the Nigerian Bank System and watch-listing consistent loan defaulters.

Salient Provisions of the GSI

The GSI is a service of last resort which can be employed by a Bank to recover outstanding debts from its customers who borrow money from it and default. A Bank is able to activate a Global Standing Instruction without recourse to the customer, by a direct set-off against deposits/investments held which the customer has in accounts with other banks.

The Guidelines provide that at the point of executing loan agreements, borrowers must also execute a GSI mandate in favour of the participating financial institution (PFI)^[1]. The effect is that a creditor bank (also known as a participating financial institution [PFI]) after entry into the loan agreement with the borrower may, where the borrower defaults, can reach out to other banks in which the defaulter maintains an account and retrieve sums to the tune of the debt owed by the defaulter without further recourse to the defaulter. For instance, where Mr A borrows money from Bank A and he defaults in paying, Bank A may reach into his accounts with Bank B and retrieve the sum he owes without further recourse to Mr A.

The biometric verification number (BVN) system shall be used to track linked accounts in other financial institutions. The Guidelines however provide that where a borrower’s BVN is not linked to any of the qualifying account types listed above, such an account will be “watch-listed”. The GSI as it is only applies to individual accounts and not to corporate accounts and can only be triggered in relation to the principal amount and accrued interest. It applies to

1. Individual Savings Accounts;
2. Individual Current Accounts;
3. Individual Domiciliary Accounts;
4. Investment/Deposit Accounts (Naira & Foreign Currency); and
5. Electronic Wallets.^[2]

Where a person defaults, the PFI shall inform the NIBSS who shall send a balance enquiry to banks with which the defaulter holds an account requesting information as to the extent of funds in that account. Where said bank responds, the NIBSS shall trigger the GSI and give a debit directive to the bank.

The GSI provides for the roles of the NIBBS and the reports to be prepared for the CBN. It also creates the offices of the Chief Risk Officer and the Chief Information/Technology Officer whose jobs it would be to enforce the GSI^[3]. It also provides the penalties^[4] to apply where the GSI is wrongly triggered or a PFI fails to honour a trigger by the NIBBS.

Legal Issues with Enforcement

By the nature of the GSI and the provisions to be enforced therein, the following will be issues that may arise. Of particular interest are the provisions that give the PFI the authority to offset the debt from any accounts maintained with other banks. There is also a possible contravention against Sections of the Constitution protecting the fundamental human rights of citizens.

1. Waiver of confidentiality

The widely applied English court of appeal case Tournier v National Provincial and Union Bank of England 1924^[5] is the legal authority responsible for the common law stance that a duty of confidentiality is implicitly owed to the customer by the banker. This means the banking contract need not contain express terms about the fiduciary duty of confidentiality. This precedent has been used for over ninety years and substantiates that a duty of confidentiality is owed by the banker to the customer beyond the date of termination of the banker/customer contract and prohibits the banker from sharing customer information with third parties like credit agencies.

Tournier’s case further substantiated that the duty of confidentiality is not absolute; Bankes LJ points out that a breach of confidentiality is permissible in four particular circumstances. These exceptions^[6] are:

(a) compulsion by law to disclose the customer’s information,

(b) where there is a duty to disclose the information to the public,

(c) instances where the customer consents the disclosure or

(d) where it is in the interest of the bank to make such a disclosure for their sake.

The exception in cases of compulsion by law relates to orders of court and statute. The question arises whether a circular/guidelines made by the CBN falls under this purview. I do not believe that it does. The provision of the law is that the CBN or indeed any organization or agency must approach the court for an order before a person’s account can be intruded into in such a manner. Thus, the attempt by CBN to bypass this provision under the guise of an exercise of the powers under Section  57, BOFIA is an obvious attempt to stretch the interpretation of that section. Furthermore, is a GSI strictly “law”? Perhaps it is, perhaps it isn’t. But the safe classification is a one under the CBN’s power to create regulations to regulate other banks in which case, it may be regarded as a subsidiary legislation.

Second, the question of the customer’s consent arises. One exception is where a customer gives consent to the intrusion. But can a customer waive their right to confidentiality perpetually? The right to confidentiality owed to customers by bankers is an extension of the right to privacy which is a constitutional right^[7] and cannot be waived perpetually. Financial institutions must balance the contractual interest of the customer in keeping his affairs confidential with the duty to disclose imposed by the Guidelines.

2. Waiver of fair hearing and the law against compulsory acquisition

Questions have been raised on whether or not the Guidelines breach Section 44 of the 1999 Constitution which provides that no law shall allow for the compulsory acquisition of any property without allowing the property owner the right to access a court or tribunal for the determination of his rights. Merely requiring a borrower to execute a GSI in favour of the creditor PFI does not take the construction of rights out of the realm of constitutional law. A contract cannot alter the provisions of the constitution and wherever such a contract is inconsistent, it is void to the extent of its inconsistency. The provision of the law as per compulsory acquisition is to the effect that compulsory acquisition shall not be taken except in strict accordance of a law that among other things, provides for compensation and gives the person aggrieved right to court for the determination of the amount of compensation.^[8]

The GSI is designed to operate as a form of power of attorney donated by the borrower in favour of the PFI. The question to then ask is what happens where the borrower disputes the indebtedness? Will the creditor PFI and the other PFIs still go ahead to attach the borrower’s other accounts? If yes, will this not amount to a usurpation of the power of the court to determine citizens’ rights and obligations? The creditor PFI also appears to be in a position where it is the accuser, prosecutor and judge in its own cause. This is likely to be viewed by the courts as a breach of the customer’s right to a fair hearing^[9] as provided under Section 36, Constitution of the Federal Republic of Nigeria, 2010.

Further legal concerns

1. The law relating to Joint account

It is my view that the implementation of the GSI will infringe on the constitutional rights of a co-joint account holder. The Constitution as we have seen provides explicitly that no moveable property of a person shall be taken possession of compulsorily except in the manner and for the purposes prescribed by a law.

It is my opinion therefore that a GSI cannot override the long-established principle of law that execution cannot be levied against a joint account where the debt is only due from one of the holders of the joint account. Both individuals hold joint interest in that account and a GSI cannot purport to attribute a portion to one party and another percentage to another. It is irrelevant that all the deposits into that linked account may have been made by the defaulting borrower. The Guidelines fail to state how monies jointly owned with unconnected third parties who are not loan defaulters as seen in the scenario above will be dealt with. This omission may allow for the encroachment by PFIs on an unconnected third party’s constitutional protection from compulsory acquisition under Section 44 of Constitution.

2. Retroactive application of the GSI?

GSI’s are not entirely novel. Loan agreements by banks usually contain clauses similar in effect to a GSI. Similarly, the CBN circular titled: New Offer Letter Clause for Credit Facilities which was issued on 26th August 2019^[10] authorized banks to include clauses similar to the GSI in their loan offer letters. The Guidelines merely give bite to the GSI and other similar clauses – provided the banks and other financial institutions subscribe to the Guidelines and execute the GSI Master Agreement.

It is foreseeable that[1] [2] [3]  PFIs will begin to re- examine their loan agreements to ascertain whether they contain clauses similar in effect to a GSI and whether they can now be used within the framework of the Guidelines.

3. Issues of Privity

The doctrine of privity of contract states that only parties to a contract shall have the right to claim any benefit from that contract^[11]. An account opened by a customer is premised on a contract between the customer and the financial institution. Therefore, the right of a creditor PFI to access monies held by a defaulting borrower in another PFI under a separate agreement with another PFI is questionable.

Furthermore, the Guidelines fail to provide any protection to the PFIs in the event that they release monies in the borrower’s account upon any GSI trigger and a court subsequently finds in favour of the borrower. The transfer of a borrower’s money with a PFI to a creditor PFI does not validly discharge the PFI from any subsequent liability to the customer.

Conclusion

The innovation by the CBN with the introduction of the GSI is great and quite timely in the current times of debt delinquency. There is no doubt that the Guidelines, if effectively implemented, while taking into careful consideration its legal implications, have the potential of addressing the problem of loan delinquency in Nigeria. The CBN however needs to be cautious in implementing these Guidelines so as not to create a bigger problem whilst trying to resolve the issue of loan delinquency. To achieve effectiveness, it may be necessary to review the GSI taking into consideration the concerns above. Consultation of experienced lawyers should be sought by the CBN in effecting the review to avoid years of litigation. As the GSI currently stands, several disputes will arise from it with the Court having to decide which way to swing. This confusion and uncertainty can be avoided by protecting the rights of citizens whilst still retrieving owed sums. The GSI is a great introduction to the Nigerian banking sphere. It could be better! Until the gaps are bridged, the Courts will be saddled with the responsibility of deciding what applies.

^[1] Section 1.0, Guidelines on the Global Standing Instruction, 2020

^[2] Section 2.0, Guidelines on the Global Standing Instruction, 2020

^[3] Section 5.0, Guidelines on the Global Standing Instruction, 2020

^[4] Section 6.0, Guidelines on the Global Standing Instruction, 2020

^[5] [1924]1 KB 461

^[6] CAC Vs UBA (2013) 5 CLRN

^[7] Section 37, CFRN 2009

^[8] Opara Vs N.C.S.B (2011) 8 NWLR (pt 1248)

^[9] Ndukauba Vs Kolomo (2005) 4 NWLR (pt 915)

^[10] BSD/DIR/GEN/LAB/12/054 signed by Ahmad Abdullahi, Director, Banking Supervision Department

^[11] Osoh Vs Unity Bank PLC (2013) 9 NWLR (pt 1358); Mohammed Vs Mohammed (2012) 11 NWLR (pt 1310)