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Consumer rights and banking contracts

Author

Listed:
  • Philipp Bagus

    (Universidad Rey Juan Carlos)

  • David Howden

    (Saint Louis University – Madrid Campus)

Abstract

Survey evidence regularly shows that bank customers view bankers as less ethical or honest than other professions. This article sheds light on one potential origin of these misgivings that has been until now unaddressed. The legal system endows certain rights to banks without altering the duties obliged of depositors. By categorizing rights according to their corresponding duties we show that a conflict exists between: (1) depositors with an on-demand right to their deposited sum, and (2) depositories (banks) that are given the legal right to make use of these deposited funds at any time. Using a legal-economic analysis, we demonstrate that the latter right held by the bank is misplaced. Rectifying this erroneous assignment of rights removes the conflict apparent in the contract. Clarifying banking rights also aids in avoiding many of the misunderstandings seemingly inherent in the banking industry. Addressing this legal inconsistency removes one source of ire directed at bankers during banking crises.

Suggested Citation

  • Philipp Bagus & David Howden, 2023. "Consumer rights and banking contracts," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(1), pages 105-114, March.
    • Handle: RePEc:pal:jbkreg:v:24:y:2023:i:1:d:10.1057_s41261-021-00185-x
    DOI: 10.1057/s41261-021-00185-x
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    References listed on IDEAS

    as
    1. Markus Knell & Helmut Stix, 2015. "Trust in Banks during Normal and Crisis Times—Evidence from Survey Data," Economica, London School of Economics and Political Science, vol. 82, pages 995-1020, December.
    2. Philipp Bagus & David Howden & Amadeus Gabriel, 2015. "Oil and Water Do Not Mix, or: Aliud Est Credere, Aliud Deponere," Journal of Business Ethics, Springer, vol. 128(1), pages 197-206, April.
    3. Philipp Bagus & Amadeus Gabriel & David Howden, 2016. "Reassessing the Ethicality of Some Common Financial Practices," Journal of Business Ethics, Springer, vol. 136(3), pages 471-480, July.
    4. Philipp Bagus & David Howden & Walter Block, 2013. "Deposits, Loans, and Banking: Clarifying the Debate," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(3), pages 627-644, July.
    5. Luigi Zingales, 2015. "Does Finance Benefit Society?," NBER Working Papers 20894, National Bureau of Economic Research, Inc.
    6. Philipp Bagus & David Howden, 2009. "The Legitimacy of Loan Maturity Mismatching: A Risky, but not Fraudulent, Undertaking," Journal of Business Ethics, Springer, vol. 90(3), pages 399-406, December.
    7. Hoppe, Hans-Hermann, 1994. "How Is Fiat Money Possible?--or, the Devolution of Money and Credit," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 7(2), pages 49-74.
    8. David-Jan Jansen & Robert Mosch & Carin Cruijsen, 2015. "When Does the General Public Lose Trust in Banks?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(2), pages 127-141, October.
    9. Alain Cohn & Ernst Fehr & Michel André Maréchal, 2014. "Business culture and dishonesty in the banking industry," Nature, Nature, vol. 516(7529), pages 86-89, December.
    10. Bagus, Philipp & Howden, David, 2013. "Some Ethical Dilemmas with Modern Banking," MPRA Paper 79599, University Library of Munich, Germany.
    11. Philipp Bagus & David Howden, 2012. "The Continuing Continuum Problem of Deposits and Loans," Journal of Business Ethics, Springer, vol. 106(3), pages 295-300, March.
    12. Paul C. Henry, 2010. "How Mainstream Consumers Think about Consumer Rights and Responsibilities," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 37(4), pages 670-687, December.
    13. Luigi Zingales, 2015. "Presidential Address: Does Finance Benefit Society?," Journal of Finance, American Finance Association, vol. 70(4), pages 1327-1363, August.
    14. David Howden, 2015. "Rethinking deposit insurance on brokered deposits," Journal of Banking Regulation, Palgrave Macmillan, vol. 16(3), pages 188-200, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Consumers; Financial institutions; Property rights; Ethics; Financial crisis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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