relationship between bank and customer

It is extremely important for both the banks and the general public to be aware of the relationship between bank and customer. Both parties should know what to expect when one walks into a bank and what to expect from the relationship if a contract is signed by the two parties.

Like all relationships, one needs to know their expectations and rights in order to have a mutually working relationship. With this in mind we will look at some of the contractual relationship between bank and customer:

1. Debtor/Creditor Relationship between bank and customer

A debtor is one who owes while a creditor is the one who is owed. When a customer opens a deposit account at the bank, the bank becomes a debtor to the customer as it is holding the customer’s money, which should be repaid when the customer demands it. The customer is therefore the creditor to the bank. In this relationship between bank and customer, it is the customer’s responsibility to ask for their money back and it is not the bank’s job to seek to repay the debt.

However when the customer borrows money from the bank, then they become the debtor to the bank while the bank is a creditor to the customer. In this relationship between the bank and customer, the customer is expected to repay the debt as agreed where the customer defaults; there is a problem with the debt.

2. Principal/ Agent Relationship between bank and customer

When a bank is dealing with a third party on behalf of the customer, the bank is an Agent while the customer is the Principal.

An Agent is one employed to work for a Principal to make contracts on their behalf. A Principal is one who informs the Agent what he wants him/her to do on his behalf.

Other examples of Principal / Agent relationship between bank and customer is when the banks arranges for insurance, sends money either abroad or within the country (generally money transfer) on behalf of the customer. Agency banking is another example of Principal agent relationship between bank and customer

3. Bailor/Bailee Relationship between bank and customer

One of the bank’s services offered to the customer is to receive valuables and documents to hold on their behalf. When this happens the bank has to take reasonable care of the property and this is a Bailor/ Bailee Relationship between bank and customer.

A Bailor is the depositor of the property who is the customer. A Bailee receives the property from the Bailor and must look after it in a professional manner. The bank is then called the ‘Bailee for reward’ since a fee is charged.

There should be complete good faith especially where customers have come to rely on the banks advice which sometimes is called Fiduciary Relationship. The relationship between the Bank and Customer creates an expectation of trust and there should never be undue influence exerted.