Banking & Finance Case Studies Index 1 Chargebacks Added December 2009
2 Financial Planning and the Aged Pension
3 Early Repayment Costs
4 Financial Hardship
5 Merchant’s EFTPOS Facility
6 Property Purchase by Bank Officer
7 Inadequate Insurance Policy
8 Disputed ATM Withdrawals
9 Disability - Protective Measure Fails
10 Maladministration in Granting Loan
11 A Hasty Return
12 A Frozen Account
13 Progress Payment to Builder
14 Reports to Credit Reporting Agency
15 Unauthorised Credit Card Transaction
16 Unsolicited Credit Limit Increase Chargebacks – Effect of consumer delay in providing evidence of withdrawn authorisation Mr A, a credit card holder disputed a charge to his account on the basis that he had paid by other means (cash). Mr A had purchased jewellery in Asia, offering his credit card for payment. He was told by the merchant, who had taken the card out of Mr A’s sight, that the card would not swipe. Mr A said he then paid in cash. The bank requested evidence of the payment by other means and he provided a document headed “Estimate” that he believed would suffice. The bank asked if he had any documentation to show actual payment and he said that the document that he provided was all that he had. The bank attempted a chargeback using the Estimate, but this was rejected by the merchant’s bank as not being sufficient to show payment by cash. The merchant’s bank also provided a signed voucher for the transaction and the transaction was represented. The bank advised Mr A that its attempt to charge back the transaction was unsuccessful. After his dispute was lodged with us, Mr A provided a receipt for the purchase, showing payment in cash. He said that he had not been able to provide the document earlier, as it was in Asia. Our Case Manager accepted that this receipt would have been sufficient to support the chargeback, had it been provided to the bank when the dispute was raised. On reviewing the signed voucher, the Case Manager was satisfied that the signature bore no resemblance to Mr A’s own signature and concluded that it had likely been forged. The Case Manager found that the reason for the unsuccessful attempt to charge back the transaction was Mr A’s failure to provide the necessary supporting documentation within the time limits set by the card scheme. However, Mr A’s explanation, the receipt and the evident forging of his signature pointed to a conclusion that the disputant had not authorised the debiting of his account. The Case Manager concluded that, while Mr A had a valid chargeback reason and the bank had tried to reverse the transaction, the reason that it this had been unsuccessful was Mr A’s own delay. Therefore, the Case Manager found that the bank was not liable to make good Mr A’s loss, in terms of the transaction amount. However, as he had not authorised the debiting of his account, the bank was not entitled to charge interest or other fees and charges in relation to the transaction. Both parties rejected the Case Manager’s Finding and the matter was then considered by the Ombudsman. The bank argued that Mr A, by presenting his card for payment, had authorised the charge to his account and so interest, fees and charges should apply. The Ombudsman rejected this argument, determining that where a card has been tendered for payment, but the cardholder has been informed by the merchant that the attempt to use it had failed and payment requested by other means, authorisation is effectively withdrawn. The Ombudsman did not accept that Mr A had authorised payment to be made twice. Additionally, the fact that the voucher bore a signature which was not the cardholder’s, the signed voucher could not be said to demonstrate authorisation for a charge to his account. The Ombudsman confirmed the Case Manager’s Finding that Mr A was liable for the amount of the transaction, but that interest, fees and charges could not be imposed by the bank. Both parties accepted the Ombudsman’s Recommendation. Back to Index or Return to eNews Issue 4 Financial Planning and the Aged Pension Mr and Mrs A had financial assets comprising a term deposit held with the bank for a number of years and Mr A’s company superannuation fund. Their other assets comprised their family home, contents and a car. Mr A was employed on a wage of $35,000 per annum but was due to retire in the following year. Mrs A earned income only from the term deposit investment which was held in her name and was shortly to qualify for the aged pension. Mr and Mrs A approached their bank to seek the advice of a financial planner about how they could arrange their financial arrangements to allow Mrs A to qualify for the maximum aged pension and maximise their income. After a meeting with the bank’s planner, he provided advice that Mrs A would qualify for the full pension if her term deposit monies were invested in a superannuation fund in her name and recommended investment in a bank balanced superannuation fund. Mr and Mrs A accepted the advice and transferred the funds to the recommended fund. Mrs A subsequently reached retirement age and applied for the aged pension. However, she was subsequently advised by Centrelink that her pension entitlement was approximately half the full pension. A review of the financial planner’s advice showed he had erred in his calculation. The lower pension entitlement therefore meant Mr and Mrs A’s overall already modest income fell after implementing the planner’s recommendation. The value of Mrs A’s superannuation investment subsequently fell significantly. Following an investigation, the Financial Ombudsman Service reached the view that it was reasonable to conclude that the error in the planner’s calculations had significantly impacted both the recommendations he had made and Mr and Mrs A’s acceptance of the advice. The Financial Ombudsman Service’s view was that the error made by the planner was not so obvious as to have been detectable by Mr and Mrs A and they therefore reasonably relied on the information supplied. Furthermore, the Financial Ombudsman Service’s view was that the recommendation made by the planner was inappropriate given Mr and Mrs A’s financial position, their historical investment profile and the resultant reduction in their income. Had the correct pension information been stated, and the appropriate recommendation supplied, it was more likely than not, in the circumstances of this case, that Mr and Mrs A would have retained their existing investment arrangements together with a part pension. On that basis, the Financial Ombudsman Service determined that the disputants were entitled to be put back in the position they would have been had the term deposit remained in place and the bank was liable to compensate them on that basis. Back to Index or Return to eNews Issue 3 Early Repayment Costs Mr and Mrs N decided to sell their home. They contacted the bank to obtain a loan payout figure and were quoted a figure which included an early repayment cost of approximately $20,000.
Mr and Mrs N said that they were not aware that there would be any penalty applying to the loan if repaid early. They said that when entering into the loan, they were already considering selling their home possibly before the fixed interest rate period had expired. Mr and Mrs N said had they known of the potential for an early repayment cost, they would never have fixed the interest rate on their loan – that is, it was claimed that the bank misled Mr and Mrs N by its silence in not providing an explanation of how the fee would be applied if they were to sell their home and repay the loan before the expiry of the fixed rate period.
Mr and Mrs N did not, however, discuss their plans to sell their home with the bank at the time they entered into the fixed interest rate loan.
In response the bank said that the early repayment cost represented reimbursement of the loss it suffered as a result of the early payout of the fixed rate loan and the potential for such a charge was detailed in the loan contract which had been signed and accepted by Mr and Mrs N.
In assessing the dispute, it was necessary for the Financial Ombudsman Service to establish: - whether the early repayment cost was properly disclosed to Mr and Mrs N
- whether it was calculated in accordance with the loan contract
- whether it was correctly applied, and
- as the loan in this case was regulated by the Uniform Consumer Credit Code (UCCC), whether the charge exceeded a reasonable estimate of the bank’s loss as a result of the early termination of the fixed rate loan (Section 72(4)).
A review of the loan contract showed it contained a clause advising of the potential for an early repayment cost to be charged to Mr and Mrs N in the event they repaid their loan before the fixed interest rate term had expired. The clause also detailed the method to be used when calculating the cost.
As the bank was unaware of Mr and Mrs N’s plans to sell their home at the time of entering into the fixed interest rate contract, the Financial Ombudsman Service was of the view that the bank had not misled Mr and Mrs N into believing they would not be charged this cost if they entered into a fixed rate loan contract but repaid their loan during the fixed rate period.
The Financial Ombudsman Service reviewed the bank’s calculations and method, and concluded that the calculation had been completed correctly based on the terms of the contract, level of the outstanding debt, scheduled repayments and the remaining fixed rate term.
In accordance with Section 72(4) of the UCCC provisions, the Financial Ombudsman Service made its own calculation based on information provided by the bank about its internal cost of funds and determined that the early repayment cost in this case was a reasonable estimate of the bank’s loss.
In the circumstances of this dispute, the Financial Ombudsman Service concluded that the bank was entitled to charge the early repayment cost to Mr and Mrs N.
Points to note: - Financial Ombudsman Service Banking & Finance Bulletin 60
Section 72(4): A fee of charge on early termination should not exceed a reasonable estimate of the credit provider’s loss
Back to Index or Return to eNews Issue 2 Financial Hardship Mr and Mrs S were experiencing financial hardship as a result of Mr S suffering a workplace injury and Mrs S having recently given birth to their child.
There had been a delay in settlement of the sale of their home due to the impending approval of a subdivision and they had fallen behind in the repayment of their home loans.
Mr and Mrs S had kept the bank informed of any possible delays with settlement and were mindful of not having a default listed against their names.
Mr and Mrs S made a number of calls to the bank regarding their predicament and they say they were given differing responses about how the matter should be handled. Mr and Mrs S say that the bank officer who ultimately dealt with their concerns appeared insensitive to their financial predicament and would not consider any alternative solutions to their problem.
When the dispute was referred from FOS to the relevant bank for review, reference was made to the bank’s obligation under section 25.2 of the Code of Banking Practice, which applied in this case as the bank was a subscriber.
In resolving the dispute, the bank offered assistance to the disputants in the form of a repayment moratorium to each of their loans on the basis that settlement would be finalised within two months. This provided the disputants with an opportunity to finalise the subdivision and sale of their property. On the sale of the property, two of the disputants’ loans would be cleared and the arrears position cleared on the third loan.
This offer was accepted by the disputants in resolution of their dispute.
Points to note Section 25.2 of the code says:
“With your agreement, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan. If, at the time, the hardship variation provisions of the Uniform Consumer Credit Code could apply to your circumstances, we will inform you about them.”
Section 66: Changes on grounds of hardship
Back to Index or Return to eNews Issue 1 Merchant’s EFTPOS Facility The disputants ran a small business as a partnership selling giftware. One partner had been in business since it started and the other had bought her share about a year before the dispute arose, after one partner retired. All of the documentation relating to the EFTPOS facility used by the business had been signed by the partner who had retired.
A customer of the business frequently telephoned the store over a period of five weeks to order gift hampers. To process the telephone orders, the disputants keyed the customer’s card number into their EFTPOS terminal. At no time did they swipe the card or obtain a signature, nor did the customer ever come into the shop. By keying in the card using the “off-line” system, the disputants were by-passing the electronic system which prevented transactions over the $100 floor limit from being accepted when the cardholder’s account did not have sufficient funds.
The cardholder’s bank subsequently sought to reverse the transactions, which amounted to approximately $16,000. The chargeback request was made on the basis that the transactions were not authorised.
The case manager reviewed the merchant agreement and noted that the disputants’ bank was entitled to charge back transactions which were not valid, including transactions not processed in accordance with the relevant procedures. It was found that the disputants had contravened the procedures by: - Processing the transactions “off-line” at times when the electronic system was functioning. (The process should only have been used when the electronic system was down);
- Failing to seek authorisation for transactions above the floor limit; and
- Failing to take reasonable care to detect unauthorised use of the card. (The case manager considered that the size, frequency and nature of the transactions should have given rise to a suspicion of fraud).
The disputants argued that they were not bound by the merchant agreement because neither had signed it personally. However, a review of the partnership agreements and partnership legislation led the case manager to conclude that the original partner who had signed the agreement bound the continuing partner, that on dissolution of that partnership the continuing partner assumed liability under the merchant agreement, that the new partner had agreed to assume equal liability for debts of the business and had adopted by conduct the terms and conditions of the merchant agreement.
The case was closed after a Finding was issued which stated that the bank could rely on its merchant agreement and charge back all of the transactions.
Back to Index Property Purchase by Bank Officer Mrs A was selling her home through a real estate agent. A loans manager (J) employed by Mrs A’s bank was, however, interested in buying the property without the involvement of the estate agent.
J contacted Mrs A on four occasions and made offers by telephone, all of which were rejected. He eventually bought the property at auction.
Mrs A said that the approaches from J were unwelcome and amounted to harassment. She said that he had accessed her loan file and used the information to try to persuade her to accept a lower figure than she was asking. She said that she was traumatised and intimidated by J’s actions, and that she had sold the property for a lower figure than she wanted due to the actions of J. She sought compensation of $35,000.
Investigation J admitted that he had contacted Mrs A to discuss buying her house. Whilst he denied obtaining Mrs A’s telephone number from her account details, the case manager found that this was the most likely explanation for his knowledge of her telephone number. He admitted accessing her loan file but said that Mrs A had given him permission to do so.
The case manager found that J’s use of the account was inappropriate because it did not arise from the banker/customer relationship, but was rather, for J’s private purposes.
It was also found that J may have used the information about Mrs A’s home loan as a private bargaining tool. However, the lapse in time between the access and the auction, and the fact that the property was sold at auction meant that it could not be concluded that J obtained a financial advantage by his actions.
Resolution In light of the distress caused, and the inappropriateness of J’s actions, compensation of $1,500 was viewed as appropriate.
A Finding was issued, but was rejected by Mrs A. The Ombudsman then issued a Recommendation stating that $1,500 was an appropriate amount of compensation. Mrs A rejected the Recommendation also, and therefore, the Financial Ombudsman Service was unable to assist further.
Back to Index Inadequate Insurance Policy Mr and Mrs C had operated a home loan with the bank for many years. The bank suggested to them that they should change the loan to a newer product that offered more benefits. Mr and Mrs C agreed to change the loan over provided that the same death and disability insurance was available with the new product. The bank officer indicated that this could be arranged and accordingly, Mr and Mrs C entered into a new loan contract.
When the new loan was drawn down Mr and Mrs C received a refund for an insurance premium. When they questioned this they were advised that their old insurance policy could not be transferred to the new loan because it was no longer offered by the bank. The new insurance policy did not offer cover for temporary disability.
Mr and Mrs C wrote to the Financial Ombudsman Service stating that they would never have taken out the new loan if they had known that their insurance policy could not be transferred.
Resolution After discussions were held between the parties, the bank agreed to establish an insurance policy under the same terms as the original policy. The bank agreed to underwrite the insurance policy itself, as the insurance arm of the bank no longer offered the product. The bank also refunded the $600 application fee.
Back to Index Disputed ATM Withdrawals Mr L and Ms W disputed a large number of ATM withdrawals, totalling $27,000, made from their line-of-credit account over a three-year period with their debit cards. They acknowledged receiving monthly statements, but said they were only concerned with the closing balance. They only made a detailed check when they noticed that the home loan was not reducing as quickly as they had expected. They provided a detailed list of disputed transactions to the bank, but conceded that some of the withdrawals would have been their own. They claimed that access to their account could have been gained internally by the bank, or via a hacker on the internet.
The bank declined to make any refund. It said it was not clear why some transactions were disputed and others were not. It also noted that Mr L and Ms W had not disputed any transactions on their credit card account, yet on some days, valid credit card purchases occurred in the same suburb as disputed debit card withdrawals.
Facts that came up during the investigation included that: both debit cards were used, but most of the disputed withdrawals were made with Mr L’s card; both cards had bank-generated PINs; on two occasions it seemed that disputed ATM withdrawals had been used to make payments to the credit card account; on one occasion a disputed withdrawal was followed by a valid withdrawal only one minute later; and on at least one occasion there was a disputed cash withdrawal using a debit card on the same day that one of the disputants used a credit card to purchase goods in the same shopping centre.
The case manager found that there was nothing to support the contention that account access was gained internally by the bank or via a hacker on the internet. There was also no information to support a possibility that an unauthorised third party had gained access to the cards and PINs. On the weight of information, the case manager concluded that the most probable explanation for the disputed transactions was that they had been made by the disputants themselves. The bank was not asked to compensate the disputants.
Back to Index Disability – Protective Measure Fails Mrs D’s son suffered from schizophrenia. To help him save and to protect him from the effects of a gambling problem, she and her son opened a passbook account and a term deposit account. The accounts required both to sign for any withdrawals.
Mrs D contributed about a third of the funds in the savings account and her son contributed the rest from income from his part time job. As funds built up in the savings account, they were transferred into the term deposit.
In 2000, the bank allowed Mrs D’s son to withdraw all the funds in both accounts, about $20,000, via telephone banking. Mrs D believed that the funds were spent in gambling venues. The error occurred because the operating authority information from the original applications was not transferred when the accounts were converted to a new format. Although telephone banking is generally not available for accounts which must be jointly operated, the accounts did not have the required restriction placed on the system.
After the Financial Ombudsman Service commenced an investigation, the bank made an offer to resolve the dispute by making a payment of $10,000 in full and final settlement. The offer was accepted and Mrs D requested that the funds be placed in a trust account in her name to be held on her son’s behalf.
Back to Index Maladministration in Granting Loan Mr G was a self employed builder. In July 1999 he approached the bank about an organic fruit and vegetable business he was considering purchasing.
Mr G was provided with a loan of $125,000 which he used to purchase the business for $120,000, with the additional $5,000 being for working capital. The bank also provided lease finance of $39,000 for a new van for deliveries and a bank guarantee for $7,950 in relation to the rental of the business premises. Security was provided by a mortgage over Mr G’s investment property which was vacant at the time with a renovation about 75% completed.
At the time, Mr G’s existing debts included a loan in relation to the investment property, a loan in relation to a property he had purchased jointly with his girlfriend and a credit card debt.
It soon became apparent that Mr G could not meet his monthly commitments from the returns of the new business. In December 1999 he placed the business (including the van) on the market for $125,000. The business was ultimately sold over twelve months later for $35,000.
Mr G subsequently complained to this office claiming that the bank should not have granted him the loans because he did not have the capacity to meet the repayments.
Investigation The Financial Ombudsman Service obtained the bank’s lending file for Mr G which included loan applications and supporting documents, internal notes about the applications, and assessment documentation. After reviewing this information, the case manager formed the view that the bank had not acted prudently, and its decision to lend to Mr G constituted maladministration because: - The bank provided 100% finance plus working capital and a lease for a business in which Mr G had no prior experience. According to the bank’s internal lending guidelines, Mr G ought to have had at least 2 years’ experience in the industry to demonstrate “satisfactory management experience”.
- Assessment of capacity to service the loans was based on incomplete and out of date financials. The bank relied entirely on vendor financial statements and did not request accountant prepared cash flow forecasts. The vendor’s financial statements apparently indicated that the net profit of the business increased by 300% from 1996/97 to 1997/98. Given this significant and unexplained improvement, the bank ought to have undertaken further analysis to satisfy itself about the sustainability of the 1998 results.
- Serviceability relied on rental income from Mr G’s investment property. That property was, however, undergoing renovation and was not in a habitable state. Therefore, rental income should not have been taken into account.
Resolution A conference was held with the parties and the Ombudsman, and further negotiations took place over subsequent weeks. The dispute was settled with the bank reducing Mr G’s outstanding debt by $90,000. This represented a 75% reduction in the debt.
Back to Index A Hasty Return Mr and Mrs W went to Europe for their honeymoon. They intended to stay for one month, but after two days, their credit card stopped working and they decided to cut short their holiday and return to Australia.
Mr and Mrs W lodged a dispute with the Financial Ombudsman Service, claiming that the bank should compensate them for their loss of enjoyment of their holiday.
When the Financial Ombudsman Service referred the dispute to the bank for its consideration, it offered an ex-gratia payment of $3,000. Mr and Mrs W did not accept this offer, and it was subsequently withdrawn by the bank.
Investigation The information provided by the bank did not establish why the credit card had stopped working. However, it was the case manager’s view that as the bank represents to customers that the particular type of card can be used in most countries, the bank would be potentially liable for losses resulting from the failure of the card to work.
The case manager then investigated whether, according to the Ombudsman’s guidelines for assessing non-financial loss, Mr and Mrs W were entitled to any compensation from the bank.
The case manager noted that: - Mr and Mrs W did not contact the bank to try to rectify the problem with the credit card; and
- Whilst the credit card did not work, they could still have accessed alternative funds by using Mr W’s Keycard. This would have allowed them to make EFTPOS purchases and ATM withdrawals of up to $A800 per day, which appeared to be more than adequate for their travelling needs.
Resolution The case manager concluded that Mr and Mrs W acted with extreme haste in deciding to return to Australia. As they had not given the bank an opportunity to resolve the matter, and did not take any reasonable steps to minimise the inconvenience they were suffering, the case manager found that it was not reasonable for Mr and Mrs W to expect to be compensated by the bank. Back to Index A Frozen AccountMs H and Ms P operated a pet supplies business as a partnership. The partnership had several facilities with the bank including an EFTPOS machine, a business credit card and a business trading account. Either proprietor was authorised to operate the accounts.
The partners became involved in a financial dispute and ceased to operate the business together. Ms P continued to trade as a sole proprietor, and the relevant change of ownership forms for the registered business name were lodged.
Ms P’s dispute with the bank arose when she deposited funds she had earned as a sole proprietor into the partnership account, and drew cheques against these funds. As soon as the bank became aware of the partnership dispute, it froze the account and dishonoured the cheques Ms P had issued. Ms P said that she was unable to continue to trade and was forced to close the business.
Ms P argued that the bank should not have frozen the account when it had been a bank officer who had advised her to continue to use the partnership account. The bank officer concerned denied giving Ms P this advice.
Issue The main issue for the case manager’s consideration was whether the bank officer had advised Ms P that she could continue to operate the partnership account. It was difficult to determine this issue because there was no documentation recording the nature of the discussion between Ms P and the bank officer.
Resolution The Ombudsman considered that a conciliation conference was an appropriate method of trying to resolve the matter. The dispute was resolved at the conference, with the bank agreeing to pay Ms P $9,000. The early conciliation conference avoided the need for a long and difficult investigation.
Back to Index Progress Payment to Builder Mr and Mrs T engaged a building firm to construct their home. They entered into a loan contract with the bank to finance the construction whereby progress payments to the builder were made at five defined stages. Mid-way through the construction the builders went into liquidation. Mr and Mrs T disputed the payment made by the bank to the provisional liquidators at the “lock-up” stage because they said the construction was not at that stage and in fact, the house had to be demolished due to defective workmanship.
Mr and Mrs T acknowledged signing the authorisation to pay the provisional liquidators at “lock-up” stage but argued that the bank owed a duty to them and should not have paid the invoice without inspecting the property.
The case manager issued a Finding on the merits of the dispute after considering the bank’s policy for progress payment inspections, the bank’s building payment practice and the Ombudsman’s legal counsel’s review of the relevant terms and conditions of the loan contract.
The Finding concluded that the bank’s policy did not require it to make inspections of the building of a residential home where the contract price was less than $1 million and that it was not the bank’s practice to inspect constructions prior to releasing a payment authorised by the owner. In this case the first two progress payments had been released without a bank inspection of the construction.
There had been no allegation that the bank represented to the disputants that it would inspect the property at each of the stages before releasing the payment to the builder. Furthermore, the loan contract specifically absolved the bank for any contractual liability to the borrowers to inspect before releasing a payment. The case manager also considered that Mr and Mrs T’s written authorisation meant that the bank was entitled to release the payment and was a representation to the bank that they were satisfied that the payment could be made. Taking all these factors into consideration, the case was closed after the Finding confirmed that the bank had acted appropriately in releasing the payment to the provisional liquidators.
Back to Index Reports to Credit Reporting Agency Mr R’s dispute related to two default listings that had been reported to a credit reporting agency by the bank.
Mr R conducted two business related cheque accounts with the bank. Both accounts were in overdraft. One account had an approved temporary overdraft limit, the other operated in overdraft from time to time without the specific approval of the bank. Mr R failed to reach an agreement with the bank to regularise the overdraft and also exceeded the temporary limit on the other account. After appropriate warnings, the bank listed the defaults to repay the overdrafts with a credit reporting agency. The default listings were made to Mr R’s consumer (individual) file.
Mr R argued that the default listings should not have been made to his consumer file when the accounts had been used for business purposes.
Legal Advice The file was referred to the Ombudsman’s legal counsel for advice. It was legal counsel’s view that a default on a business cheque account should not be listed on an individual’s consumer credit file because “credit”, as defined in the Privacy Act, has not been extended to that individual. However, a business default listing could be made to a person’s commercial file.
Resolution A Finding was made that as the listings to Mr R’s consumer file had been made in error, they ought to be removed. The Finding also dealt with Mr R’s claim that the wrongful listing had prevented him from obtaining credit elsewhere, and that he should be compensated.
It was found that Mr R was in default of his obligations to repay the overdrawn funds and, as a result, suffered no loss because of the listings to the consumer file. This was because the default listings could have been made to Mr R’s commercial file. Mr R required further credit to fund the business and had the listings been made to the commercial file, this would have prevented Mr R from obtaining such credit. Therefore the listing to the consumer file, although in breach of the Privacy Act, left Mr R in the same financial position he would have been in had the default listing been made to the commercial file.
The bank accepted the Finding and removed the default listing on the consumer file. As the debts had been repaid, no listing was made to the commercial file.
Back to Index Unauthorised Credit Card Transaction Ms K applied for a credit card but says the application was declined and she never received the card. Some time later, Ms K was contacted to make payments on a debt of $1,000 owing on the credit card account. Although Ms K did not believe she was responsible for the debt, she became nervous when the bank threatened to list the default with a credit reporting agency. She reluctantly agreed to repay $50 per month towards the debt.
Ms K then received a letter from a collection agency demanding repayment of the full amount of the debt. Ms K contacted the bank to ask how the account could have been opened in her name when her application was declined. She requested copies of the identification that had been shown when the account was opened, but she was advised that she would have to pay a fee for the information.
A default listing was subsequently entered against Ms K’s name and when this was discovered, Ms K wrote to the Financial Ombudsman Service requesting assistance.
The dispute was referred to the bank for its consideration. The bank conducted an investigation into the matter and advised that its records showed that the credit card application had, in fact, been approved but that it was not able to confirm that Ms K had received the card. The bank accepted that the card may have been used fraudulently by a third party, and the dispute was promptly resolved with the bank agreeing to extinguish Ms K’s liability for the debt and removing the default listing.
Back to Index Unsolicited Credit Limit Increase Ms E complained about a $7,211 unauthorised transaction made with her credit card without her knowledge or consent. The issue for the case manager’s consideration was whether Ms E had disputed the transaction within the timeframe set out in the bank’s Conditions of Use for Credit Cards. After the case manager issued a Finding stating that Ms E was liable for the transaction because she had not disputed the transaction within the required time frame, Ms E appealed and introduced a new argument: that she should not be liable for the unauthorised transaction because the bank did not assess her ability to repay the amount of credit when it offered her extensions of credit. Investigation The case manager investigated this new aspect of the claim and noted that: - Ms E had been employed by the bank in 1994 when it approved a credit card with a limit of $2,000. She had, however, ceased working 13 months later to look after her children. She never returned to work and the only income she received was approximately $6,000 per year in government benefits;
- Despite this, over the next six years, the bank offered Ms E six unsolicited increases in her credit limit which were accepted. This saw her credit limit rise from the original $2,000 to $10,000; and
- At no stage was Ms E required to advise the bank of her financial details. (The bank said that offers for increases in the credit limit were based on the bank’s assessment of the good conduct of the account.)
The view of the Ombudsman’s Banking Adviser was that a limit of $2,000 was the maximum that could be justified based on Ms E’s financial position.
Resolution The case manager summarised the banking advice in a letter to the bank and the matter was subsequently resolved by negotiation between the parties, facilitated by the case manager. The bank agreed to refund the amount of the disputed transaction and interest, and Ms E agreed to have her credit card cancelled.
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