Banking blues

By MARK FRYER

Banks are a bit like electricity or water - one of those things we notice only when they suddenly stop working the way they should.

Otherwise we put our money in, take it out, borrow too much, moan about the charges and then get on with more important things.

But sometimes things go horribly wrong - unexplained charges on the credit card, loans that just can't be repaid, investments that go sour.

For the past 11 years the Banking Ombudsman scheme has been helping straighten out those sorts of problems.

And each year, with ombudsman Liz Brown's annual report, there's a list of some of the banking horror stories she and her staff have handled.

Read on for the simple pleasure to be had from others' misfortune, plus a few pointers that just might keep your bank woes from featuring in next year's report.

One beer? That'll be $4200

Visiting Hong Kong, Mr B cooled off with a beer and used his credit card to pay - HK$19 as he remembered, or about $4 at today's exchange rate.

Back home, his card statement showed the cost was not HK$19 but HK$20,000 ($4200).

Not surprisingly, Mr B complained to his bank, arguing that bar staff had added three zeroes to the amount then given themselves a HK$1000 tip.

The bank refused to give back his money.

Mr B accepted that he had signed the sales voucher and could not prove it was forged. The bank's conditions said customers were responsible for any sales vouchers they signed, says the ombudsman's report.

She also found that Mr B's statements were inconsistent and recommended he drop the claim.

The moral of the story is easy to see: check the total on those credit card slips before you sign, and keep a copy.

Hang up on helpful callers

One of the older tricks in the book is still reeling them in, as Mrs X discovered.

After she lost her purse, Mrs X received a call from an ever-so-helpful man who explained that her card had been retained by a banking machine and cancelled.

He offered to courier her a new card and thoughtfully asked if she would like her old PIN number loaded on the replacement card.

She would, and told the caller the number.

Next day Mrs X discovered that, far from being cancelled, her old card had been hard at work withdrawing money from her account.

Mrs X accepted that she was partly to blame, but argued that the bank should share some of the loss.

Not so, said the bank, and the ombudsman agreed. Mrs X had disclosed her PIN and the loss was all hers.

No, really, you decide

Mr and Mrs P's bank refused to renew a $485,000 loan because it was worried about their ability to service the debt. Another bank made the loan after checking bank statements and reports on their business.

But the couple couldn't keep up the payments and the second bank sold their home for $475,000 at a mortgagee sale, leaving it $67,000 short.

Mrs P then complained that the bank was negligent when it lent them so much.

Not so, said the ombudsman. While the couple's ability to service the loan was marginal, the bank had made adequate inquiries and was entitled to take a risk on them and their business.

The lesson: a bank has to satisfy itself that a borrower can service a debt, but it doesn't have to be right; in the end it's the borrower who must decide if they can make the payments.

The credit limit won't save you

Mr and Mrs L bought a Bali resort timeshare for $20,000. They paid the $2000 deposit with their credit card and arranged to pay the rest later, also on the card.

If they changed their minds, the couple thought, the card's $3000 limit meant the rest of the purchase price would not be processed.

To their chagrin, and despite requests to the bank, the resort kept making transactions on the card until the full purchase price was paid and the card was well past its limit.

The couple and their lawyer complained, but with little success.

While customers are not meant to exceed their credit limits, said the ombudsman, the card's conditions were clear: if a card-holder authorised transactions beyond that limit then they were liable to pay.

She awarded the couple some compensation for the bank's poor communication, but the $20,000 was theirs to pay.

Be careful, reasonably

In London, a "shoulder surfer" watched as Mr K punched in his PIN number at a banking machine, then tapped him on the shoulder and said he had dropped some money.

As Mr K bent down to look, the offender plucked the card out of the machine, ran off and withdrew $6000 in the space of eight minutes.

Too bad, said the bank, arguing that Mr K did not take reasonable care of his card and his number.

Not quite, said the ombudsman, arguing that it was only human nature to have a look if someone said you'd dropped some money.

However, she said Mr K might not have been as careful as he said about hiding his PIN. In the end, both sides agreed to the bank paying three-quarters of Mr K's losses.

Resist the rush to invest ...

Several cases suggest that banks can be a little too eager to move customers out of safe but dull term deposits into riskier investments.

Take Mrs C, 76, in poor health, with her $17,400 life savings in a short-term deposit.

Her bank suggested she meet an investment adviser who recommended she put the money into the bank's retirement savings plan, suitable for a "balanced" investor, willing to accept a moderate amount of risk.

When the investment lost value, Mrs C asked for her money back, plus the interest she would have received if she had kept it on term deposit. No deal, said the bank and Mrs C went to the ombudsman.

In its defence, the bank pointed out that Mrs C had signed forms acknowledging that she understood the value of her investment could fall, and that she had acted against the bank's recommendation that a term deposit was her best choice.

But, said the ombudsman, Mrs C had made the decision near the end of her first and only meeting with the adviser, without time to digest all the information she was given.

The form she signed was treated as a formality.

The bank agreed with the ombudsman's recommendation that it give back Mrs C's initial investment, plus compensation for lost interest.

In several other cases people got some or all of their money back because they were put into investments that didn't meet their needs, were not given enough information on the risks or time to decide what to do.

... but do your own homework

The bank recommended that Mr and Mrs K put their $300,000 in term deposits into its managed fund.

Twenty months later and $65,000 poorer, they pulled out their money and complained that they were not warned about the risk of losing some of their capital.

Not so, said the bank, and the ombudsman agreed - the bank's adviser might not have given enough advice on the chances of a loss, she said, but in this case the couple had sought other advice and had plenty of opportunity to read the investment statement, which clearly explained the risks.

There are limits

Mr X, a beneficiary, got a credit card with a $5000 limit, which his bank more than doubled over the next 18 months, without him asking and without much change in his income.

Mr X spent up to his limit and could not repay his debt.

When he complained, the bank said it had lifted the credit limit because of his previous good repayment record.

But the ombudsman decided the bank had breached the Banking Code of Practice, which requires it to consider ability to repay when making a loan.

The bank agreed to repay Mr X $500 for inconvenience.

It also refunded the interest and charges that applied to the increased amount, though he still had to pay for the items he bought with the card.


MAKING COMPLAINTS

If you have a complaint about a service provided by a bank the Banking Ombudsman may be able to help.

You'll need to try to work out the problem with the bank first.

If you can't, the ombudsman can order compensation of up to $120,000, or $150,000 if the complaint is about insurance provided by a bank, plus payment for inconvenience.

Don't bother complaining that the bank won't lend you money, that its interest rates are too high, or about its standard fees and charges - those issues aren't covered.

Contact:

The Banking Ombudsman

PO Box 10-573, The Terrace, Wellington

Tel: 0800-805-950

Email: help@bankombudsman.org.nz

* Email Mark Fryer