Bank failed to get both parties’ consent before using joint property as security for more borrowing

Categories:

Advice & information, Instructions not followed, Lending,

Summary:

In July 2023, Dolores discovered that the bank had linked several jointly owned properties to a loan to her former partner in his name alone. Dolores complained that this had happened without her knowledge or consent. She also complained that the bank incorrectly assessed her former partner’s loan application, applied interest rate changes on joint loans without proper authority, and failed to respond fairly to her complaint.

Published:

August 2026

Dolores said the bank’s actions complicated the resolution of relationship property matters and caused significant stress, inconvenience and expense.

Our investigation

The bank’s records showed the jointly owned properties were subject to mortgages that meant they could secure any future lending provided by the bank to either Dolores or her former partner. However, it is not good practice for a bank to provide further lending against jointly owned property without the knowledge or consent of all owners of the property. The bank’s policy and practice also did not permit it to do so.

The evidence showed the bank incorrectly linked the jointly owned properties as security for Dolores’ former partner’s loan. Further, when Dolores asked the bank whether her former partner had any lending in his own name secured by the joint properties, the bank had an opportunity to identify and correct the mistake before her former partner drew down the loan. But it did not, and thus it did not treat Dolores fairly and reasonably. Only later did it identify and accept it had made a mistake.

We found the bank acted correctly over the disputed interest rate instructions. The loan terms allowed either borrower to give the bank instructions about interest rates. The bank received instructions from her former partner that it was entitled to accept and act on. When it was later told of their separation, it required consent from both her and her former partner before making further changes.

As for the bank’s handling of Dolores’ complaint, the evidence showed the bank investigated the matter, remained in contact with Dolores, discussed possible solutions, and responded within a reasonable timeframe. We found the bank met its complaint-handling obligations.

We could not consider Dolores’ complaint about the bank’s assessment of her former partner’s loan application because the bank gave that service to him, not her.

Dolores described financial losses arising from the bank’s error in linking the joint property as security, but did not supply any evidence that would have enabled us to verify the losses. We accepted, however, that the uncertainty created by the error caused significant stress and inconvenience and complicated the resolution of property matters. We recommended the bank pay Dolores $2,000 for the stress and inconvenience that its wrongdoing had had caused her.