better banking

Case - 44313

2015 - 2016

Lending

Non-property lending

Mr and Mrs B were in their 70s when they became involved with what they thought was a Hong Kong investment scheme.  They withdrew money from their bank term deposits and transferred it via Western Union to Hong Kong.  They were then asked for more money to cover court fees, taxes, bank transaction fees and insurance. 

After two months, Mr and Mrs B had sent $100,000, cleaning out their term deposit funds.  They were asked for more money to pay a court fee so they could recoup their investments, and successfully applied for a $10,000 personal bank loan.  They told the bank they needed the money to pay a court to release their funds.  A week later they applied for a further $10,000 loan, which the bank also approved. 

Subsequent enquiries by their son revealed they had been scammed.  They had lost their life savings and now owed money to their son, who had repaid the bank.   

Mr and Mrs B complained to the bank that it should have asked further questions about why they were breaking their term deposits, withdrawing lots of money, and asking for personal loans.  These activities were contrary to their normal account conduct, and the bank should have questioned them about it and been able to identify the fraud sooner. 

We looked at the term deposit breaks.  The bank had asked Mr and Mrs B why they wanted to break the term deposits, and they explained that the money was for their family and a holiday.  Mr and Mrs B told us that this was how they intended to spend their investment.

We found it isn’t standard banking practice for a bank to question a customer about the reasons for withdrawing funds.  Unless the bank is aware of facts that indicate a significant possibility of fraud, or the customer is incapable of managing his or her own financial affairs, it isn’t required to question customer decisions.  Mr and Mrs B had also given reasons for breaking their term deposits, which wouldn’t have alerted a reasonable banker to the fraud. 

We then considered Mr and Mrs B’s loan applications.  The bank had followed good practice for the first loan application, asking the reason for the loan and following the proper affordability assessment process.  But the second loan application wasn’t handled well. 

There was no loan reason recorded, or querying of why the “court” required another significant amount of money so soon after the first loan.  Such borrowing was uncharacteristic of people of their age and banking history, and a review of the bank’s records would have revealed a series of significant withdrawals over a short period, to the point the couple were borrowing money. 

The bank responded that further enquiries mightn’t have revealed the fraud, given the couple’s explanation about breaking the term deposits.  Further, if the bank had warned them, they may not have heeded the advice as they were completely taken in by the fraud. 

We didn’t agree, considering that reasonable enquiries about the second loan might have elicited sufficient information to prompt a warning to Mr and Mrs B. The couple might have heeded such a warning, given it came from a financial institution.  We felt that the bank’s failure to make reasonable enquiries about the purpose for the second loan meant Mr and Mrs B were denied the opportunity to reflect on the wisdom of borrowing further. 

We considered that a fair and reasonable settlement of the matter was for each party to bear half of the second loan.  The complaint was concluded on that basis.