Case Notes
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Lending - business loan - overdraft - unpaid debt - change of account management by the bank - lapsed insurance policy - insurance claim - bank’s failure to honour direct debit - collection of debt
In 2001 Mr L applied for and was granted a loan package to finance the setting up of a business. Part of the loan package included a $5,000 overdraft.
Over the next few years the overdraft was increased to $10,000 along with an increase to the main business loan. All lending was approved by one of the bank’s business managers who by all accounts had a good working relationship with Mr L. In November 2005 this manager was transferred and a new business manager was appointed by the bank to handle Mr L’s account. She became concerned about the level of Mr L’s debt, and the relationship deteriorated.
Over the next three years Mr L’s business struggled to meet all its commitments and on numerous occasions the overdraft limit was exceeded.
Extensive negotiations (and some periodic deposits by Mr L) failed to resolve the overdraft issue and as a result the bank started to dishonour payments made by Mr L. One such group of dishonours related to the premiums on Mr L’s insurance policy, which carried an accident and disability benefit.
Eventually, despite further concessions from the bank, the management of the account was transferred to the bank’s specialised business service to try to manage the overdue debt.
In April 2006 Mr L was injured in an accident and, although payments were made by ACC, the claim on his insurance policy was declined. The cover had lapsed due to non payment of premiums.
By mid 2007 the outstanding debt had increased to more than $23,000, and the bank commenced recovery proceedings.
In July 2007 Mr L paid the bank the outstanding amount due as at May 2007. However with additional interest and other debts the bank was still owed another $11,000.
Mr L complained to the bank, but it could not resolve the complaint to his satisfaction and he referred it to me.
Mr L asked me to consider two main complaints. Firstly that the bank should have honoured the direct debit for his insurance premiums even though the transaction would overdraw his account, and secondly that the fees charged during the collection process were unreasonable. Mr L also submitted that the bank had acted inappropriately by changing the manner in which the account was managed despite his belief that the arrangement with the original business banking manager would remain throughout his dealings with the bank. In addition to costs for legal fees and interest Mr L also claimed compensation for emotional stress and anxiety.
As Mr L’s debt was continuing to increase, the case was investigated under our fast track process.
After investigation I concluded that the bank was entitled to change the management style of the account. Further, there was no obligation on the bank to indefinitely honour transactions overdrawing the accounts and although it may have honoured insurance premiums in the past, the bank had made it clear to Mr L that the situation had changed. In addition Mr L had had an opportunity to reinstate the insurance before it lapsed and before his injury. I recommended that the complaint be withdrawn.
The bank accepted the recommendation. However, Mr L was not satisfied and went on to express concerns that I had moved too swiftly to recommendation and had not allowed him enough time to consider the complaint fully.