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Account operation - collection action on overdue debt - failure to advise of consequences of debt referral - bank’s responsibilities under Code of Banking Practice
Ms T took out a personal loan with a bank and arranged for the loan repayments to be paid by automatic payment from another account with the bank. Ms T then left New Zealand to take up an employment opportunity and asked her parents to look after her accounts while she was overseas. She did not tell the bank about her departure or make any arrangements to ensure that there were enough funds in her account to meet the loan repayments.
The loan fell into arrears because of insufficient funds to meet the automatic payments. The bank was unable to contact Ms T. It wrote to her on a number of occasions and left messages at the contact number it held for her. A formal demand was then sent to Ms T and when she did not respond, the outstanding balances on the loan account and funding account were referred to a collection agency.
Ms T’s father complained to my office about the bank’s decision to refer the debt to a collection agent without contacting him or his wife to advise there was a problem with the accounts.
After a full investigation I concluded that Ms T had left New Zealand without making any arrangements with the bank to allow her parents to manage her accounts on her behalf. I noted that the last contact address for Ms T before she left the country was her parents’ address and that a number of letters had been sent to Ms T at that address. The bank had provided copies of the templates for the relevant letters and I had no reason to doubt that the letters, including the demand letter, had been sent. I was satisfied that the bank had taken all reasonable steps to contact Ms T before it made the decision to refer the debt for collection.
However, when I examined the demand letter and the other letters sent to Ms T, I noticed that none of the letters explained that a possible consequence of failing to respond to the bank’s request for repayment of the loan was referral of the debt for collection. This failure was a breach of the Code of Banking Practice.
I concluded that Ms T failed in her obligation to repay her debt to the bank and that the bank was entitled to take appropriate recovery action. However, the bank had not fulfilled its obligation to inform Ms T of the possibility that the debt would be referred to a collection agent and the consequence of such a referral. Therefore, in this particular case, the bank’s decision to refer the debt for collection was unreasonable.
I proposed that the bank should recall the debt and remove the debt listing. The bank submitted that it had provided me with the wrong template and that the demand letter sent to Ms T did in fact comply with the Code of Banking Practice. Because Ms T’s father did not to respond to my findings, the case was concluded without any further action being taken.