Bank should have made further inquiries about out-of-the-ordinary payment

Categories:

Advice & information, Instructions not followed, Investment,

Summary:

In August 2020, Eliza’s father gave her brother authority to operate his bank accounts. The bank recorded the brother as an authorised signatory on the accounts, and he did his father’s banking on his behalf. Eliza’s father had earlier given both Eliza and her brother an enduring power of attorney over his property matters.

Published:

October 2026

In August 2021, shortly after Eliza’s father sold his home, $760,000 was paid into his account. The following day, Eliza’s brother telephoned the bank and instructed it to transfer $123,000 from his father's account into one of his own accounts to repay his home loan. A few days later, he used internet banking to transfer $600,000 from his father's account into his own account.

In March 2025, Eliza’s brother instructed the bank to put $300,000 into an investment for his father. The bank opened the investment in both their names. It later corrected the error and put it solely in the father's name.

After her father's death, Eliza, as executor of the estate, complained that the bank should not have allowed her brother to make the $123,000 home loan repayment with her father’s money. She also complained that the bank should not have set up the investment in both her father’s and brother’s names. And lastly, she complained that the bank had not adequately handled her subsequent inquiries about her father’s banking.

Our investigation

The bank’s records showed the home loan transfer benefitted the person giving the instruction (Eliza’s brother) rather than the account holder (Eliza’s father). Eliza’s brother instructed the bank to make the transfer via phone so the bank knew, or ought to have known, that Eliza’s brother was the making an out-of-the-ordinary transaction that befitted only him. Thus, we considered the bank should have made further inquiries before processing the payment. Banks must act on lawful instructions, but they must also question instructions if, among other things, they suspect a scam or fraud or if they suspect the customer concerned is being unduly influenced or financially abused.

The bank’s records also showed the brother’s instruction was to set up the investment in the father's name only, and that the bank had mistakenly opened it in both their names. The bank’s action was inconsistent with the account authority in place, and so the bank had not acted with reasonable care and skill when it set up the investment.

As for Eliza’s complaint about the bank’s communication with her after her father’s death, we reviewed the correspondence and were satisfied the bank communicated clearly and acted reasonably when responding to her inquiries.

It was difficult to assess the impact of the bank’s conduct on Eliza’s financial position because we could not say with certainty what would have happened if the bank had made further inquiries about the home loan payment or had not set up the investment as a joint one. Also, Eliza had entered into a deed of settlement with her brother over the distribution of their father’s estate. However, we were certain the bank's actions caused Eliza extra stress, inconvenience and legal costs as she went about winding up her father’s estate.

The bank acknowledged it had made a mistake in opening the term deposit in joint names, apologised and offered Eliza $6,000.