Monitor keeps banks up to the mark

By MATHEW DEARNALEY

Liz Brown, just reappointed for three years as Banking Ombudsman, mentions deep pockets when asked how independent she is of the industry that funds her.

She acknowledges a lingering suspicion among bank customers that whoever pays the piper calls the tune.

On the other hand, banks are as likely to grumble that she seems to think they can afford generous compensation settlements.

"We refer to the deep-pockets syndrome," says Mrs Brown, a 57-year-old Englishwoman who came to New Zealand in 1972 with a law degree from Oxford University and was appointed Banking Ombudsman in 1995.

"Banks assume I think they have deep pockets and complainants assume I'm in those pockets."

More seriously, she points to the role of a five-member Banking Services Commission in ensuring her office's independence, modelled on similar schemes in Britain and Australia.

Chaired by retired High Court judge Sir Ian Barker, QC, the commission includes two bankers - National Bank chief executive Sir John Anderson and ANZ head Dr Murray Horne - and two consumer representatives.

These are Consumers Institute chief executive David Russell, the only remaining founding member, and Margy-Jean Malcolm, a former head of the Citizens Advice Bureau network.

Ms Malcolm's appointment by the Minister of Consumer Affairs represents the only formal Government involvement, although an implied threat of regulation acted as an incentive for the banking industry to introduce the scheme in 1992.

The parliamentary Chief Ombudsman, then Sir John Robertson, looked closely at how it was to be set up before he granted permission to use the "ombudsman" title.

An insurance industry ombudsman followed in 1995, but Sir John's successor, Sir Brian Elwood, indicates that he will be less likely to approve future applications. He says he welcomes the schemes but is concerned that too many people assume they are attached to his office.

Participation in the banking scheme is supposedly voluntary, but the Bankers' Association requires all nine of its members to join, while new rural banker Rabobank has also signed up.

The commission is responsible for setting the scheme's budget, before asking the Bankers' Association to levy the banks.

Mrs Brown will not reveal the budget, but it has had to cope with an increase in staff from three part-timers in 1992 to six fulltime investigators - including four lawyers and two from the banking industry.

Complaints to the Banking Ombudsman have steadily increased, disappointing expectations that they might have tapered off after the early years, and the number of new investigations leaped 46 per cent to 350 in 1998-99.

Banks paid compensation of $512,412 to complainants that year, but Mrs Brown had to make only one binding award, indicating general industry acceptance of her settlement recommendations.

The median figure was just under $1500.

Mrs Brown attributes the growth in complaints to radical industry changes, in which many bank branches have been closed in favour of electronic banking.

The service is provided free to bank customers, who may at any time reject a settlement proposal and take a case to court, although the cynics will say people eventually end up paying through higher fees.

Some customers criticise the scheme as having too narrow a jurisdiction.

Mrs Brown is unable to consider claims which may exceed $100,000 or question matters of commercial judgment.

They also suspect that banks are too quick to refer them to the Banking Ombudsman rather than try to deal properly with complaints themselves.

One man who has yet to take a dispute to Mrs Brown quipped that it seemed "a bit like your ex-wife recommending a good divorce lawyer."

Another customer, whose bank acknowledges mistakenly charging her too much interest against a mortgage, is still waiting for replies to two letters sent more than a year ago seeking repayment details.

She was appalled when the bank - asked by the Weekend Herald why it had not written back - said she should have complained to the Banking Ombudsman before approaching the newspaper.

The Bank Customer Action Group, a consumers' lobby headed by victims of alleged premature lending foreclosures, is annoyed by comments by Mrs Brown that she has seen no evidence of systemic overcharging by banks.

First quoted in the Dominion and Press , these were highlighted last week in full-page advertisements placed by the ASB Bank in response to a Weekend Herald report about overcharging fears.

Mrs Brown expressed concern to the Herald about the prominence given to her comments, saying she had simply responded to questions and had not gone out of her way to issue a statement.

This was because her office was purely "complaints driven" and had no power to instigate an inquiry into whether wholesale overcharging reported in Australia was a feature of New Zealand banking.

Bank Customer Action Group spokesman Gray Eatwell says it has tried to refer cases of overcharging to Mrs Brown, including several where banks have granted refunds but not nearly enough to meet claims.

Each was rebuffed as falling outside her jurisdiction, says Mr Eatwell, who won refunds of more than $17,000 from the Bank of New Zealand in 1998 but is seeking $900,000 in court after losing his Franz Josef beef farm.

"I wouldn't attack Lizzie Brown as an individual. She is precise, and I think she is trying to do her best, but I do believe her hands and teeth are tied," he says.

Mrs Brown will not comment on individual cases, but accepts there may be an argument for raising the $100,000 ceiling to the upper level of home loans.

The limit has been the same since the scheme began, but her Australian counterpart recently had his jurisdiction lifted to $A150,000 ($192,000).

Even so, she says she has received no more than about 20 complaints involving claims of more than $100,000, and banks have agreed to waivers to allow her to deal with several such cases.

She sees her office as a relatively low-level disputes forum not equipped to deal with highly technical complaints, adding that people can use the courts if unable to gain satisfaction through the scheme.

Her prime focus while trying to resolve disputes is to monitor a code of banking practice, originally drafted to set out banks' obligation to personal customers but recently extended to include small and medium businesses.

Although she cannot question a bank's commercial judgment, she can investigate claims of maladministration and recalls one instance when she instructed a bank to delay a foreclosure on that basis.

Her funding used to be partly based on a bank's size and partly the level of complaints it generated, to encourage banks to settle more customer gripes themselves.

But the bankers are understood to have decided to make funding entirely complaints driven, adding to that incentive.

Mrs Brown headed the parliamentary Ombudsman's South Island office before succeeding the banking scheme's founding Ombudsman, Nadja Tollemache.

* Customers unable to gain satisfaction from their banks can contact Mrs Brown's office by:

Phone: 0800-805950 (freephone) or 04-4710006.

Fax: 04-4710548.

Mail: The Banking Ombudsman, PO Box 10573, The Terrace, Wellington 6000.

The banks - a Herald series

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