Banking Ombudsman Scheme supporting Money Week
Banking Ombudsman Scheme supporting Money Week
It's been a month of shocks for those of us in Wellington. Earthquakes are unfortunately outside our control, but we can try and help bank customers avoid financial shocks! One way is by supporting Money Week.
This year we are a little limited in what we can do because we are still coping with the after-effects of the 21 July earthquake. We are in temporary accommodation (see below) but supporting Money Week by releasing a new Quick Guide on guarantees, and supplying a question for Money Week's daily online financial literacy quiz, designed to test people's financial and banking sector knowledge.
The Money Week 2013 quiz is available to organisations to put on their Facebook pages, website and intranet. We are keen to help spread the word so check our Facebook every day this week and test your financial general knowledge.
Better still, make the Money Week quiz your organisation's five-minute quiz all week, and forward the quiz link to your friends and colleagues to let people they know about the quiz too.
Many people we deal with are not as informed about their banking as they need to be. Learning from mistakes is bad enough but learning from mistakes you don't realise you are making is much worse. We want to help people learn without the pain.
In this edition, we've chosen to tell you about a recent complaint that demonstrates the value of being financially sorted as well as being aware of how banks work. Unfortunately the complainant, Mr G, had not kept tabs on his spending and was unaware of his bank's policy on honouring overdrawn funds.
Mr G travelled overseas for a number of months. During his time away, he withdrew funds from his savings account. On his return, he discovered the account was just over $1,000 overdrawn because his bank had honoured withdrawals when it had insufficient funds. Mr G complained he had not asked for an overdraft on the account and felt he should not have to repay the amount outstanding which included penalty fees and overdraft interest.
After discussion with the bank, it offered Mr G two options for settlement:
reducing the debt by deducting all
interest and charges on the overdraft if he made
arrangements to make regular repayments to repay the
principal amount, or
reducing the principal by 20% for immediate full repayment of the debt.
Mr G complained to us. He did not agree to either option and felt the bank should accept some responsibility for the situation he was in.
We explained the bank was entitled to seek funds he had used for his own purposes. In addition, the account's terms and conditions allow the bank discretion to honour transactions when the account had insufficient funds.
To facilitate settlement of the complaint, the bank offered to cut the interest and charges and reduce the debt in exchange for immediate repayment.
After considering our advice, Mr G decided to accept the bank's offer and chose to repay the reduced debt in full.
We have just published a Quick Guide on what people need to think about when deciding to guarantee somebody else's lending. Problems people encounter with guarantees when things go wrong consistently feature in our caseload each year, and while the numbers aren't high, we are concerned that people don't know enough before they agree to be a guarantor.
More often than not, a guarantee arrangement can work well, and is a useful financial tool. But our experience dealing with guarantee complaints and disputes is complaintants may not have been fully aware of the negative impact a guarantee can have on their own finances in the event the person whose lending they agree to guarantee gets into financial strife.
Unfortunately, ignorance is not a defence and we have seen guarantors find themselves in dire financial straits themselves, which is all the more distressing given their good intentions.
With restrictions on low deposit mortgages taking effect from next month, it is possible more low deposit borrowers will seek guarantors to secure funding for their home loan, and it’s crucial all concerned are fully informed about what that involves in terms of financial risk.
I encourage you to read our Guarantees Quick Guide and mention it to anybody you hear who is considering becoming a guarantor.
More Quick Guides on topical banking issues are in the pipeline, including one on restrictions on low deposit mortgages, so watch this space.
We have been operating out of the Law Commission's offices (Level 19, 171 Featherston Street, Wellington) since late July after our building was damaged in the 21 July earthquake.
Our contact phone numbers remain the same: 0800 805 950 or 04 471 0006, as does our enquiries email address: email@example.com.
Thanks to the chance meeting, we were kindly offered spare desks in the Law Commission's office. Some Commission staff even moved out of their offices to other work stations to accommodate the needs of our team, for which we are grateful. We will update you on our long-term accommodation as soon as we can.
Due to robust contingency planning, we were able to minimise the impact of the unscheduled move on our complaintants and participants, with most staff able to work remotely within a couple of days, and phone calls, messages and emails being checked within three days of the earthquake. However, we do apologise for any inconvenience caused by the disruption.
A bouquet goes to Banking Ombudsman Scheme independent Chair Miriam Dean who has been appointed by the government to conduct its inquiry into the Fonterra milk contamination. Fortunately, Miriam will be able to continue her commitment to the scheme while the enquiry continues.
Senior analyst Chantal Knight is set to take parental leave for her second child from early October. Chantal's work will be picked up by Kylie Stratton and Leon Harvey (when he returns from overseas). We wish Chantal well, look forward to seeing the baby and promise to take the utmost care with statistics and research until she returns at the end of March.