Failure to mention fee misleading

Categories:
Breaking a term deposit
Summary:
Tama deposited $400,000 with his bank for two years at 5.25 per cent. A year later, he went to the bank to discuss breaking the term deposit and using most of the money to buy a property. He asked the staff member whether he would face any penalties. He was told he would receive interest on just the money he left in for the balance of the term.

On settlement day, Tama went to the bank for a bank cheque to pay the settlement sum. He was told he would have to pay an interest recovery fee of $6,600 for breaking the deposit. This, in effect, reduced his interest rate from 5.25 per cent to 1.15 per cent.

Tama disputed the fee, saying the bank had not warned him about it earlier. He asked at another bank where he had a term deposit and learned that it would have applied a similar fee. Tama considered he had no option but to pay the fee so he could buy the property.

When Tama complained to the bank, it referred him to the account's terms and conditions, which allowed an interest recovery fee in such circumstances. It also pointed to a diary note made two years earlier referring to the calculation of break penalties. It considered Tama’s query about whether he would face any penalties was not the right question, and that he should have asked the bank to review the details of breaking a term investment. 

Our investigation

The terms and conditions did indeed allow the bank to charge an interest recovery fee, but we considered the bank had failed to alert Tama to the fee. This omission was likely to mislead and was therefore a breach of the Fair Trading Act 2012. The information a bank gives a customer should not depend on the customer asking precisely the right question. 

Our task was to decide what position the customer would have been in if the bank had made a proper disclosure. Tama said he wouldn't have bought the property if he'd known about the fee. But the fact was he had bought the property, and it was neither reasonable nor practical to reverse the purchase. Tama would always have had to pay the fee if he wanted to buy the property, so it was not a direct loss. He had also received a benefit from breaking the term deposit, namely, he had been able to buy the property.

However, the bank’s failure to give the correct advice had inconvenienced him, and it would have been stressful to be told about a fee of that size on settlement day. We therefore proposed compensation of $750.

The bank accepted our proposal, but Tama did not, saying it failed to take account of the amount of money he had invested and the length of time he had been a customer of the bank.

Outcome

Tama eventually accepted our proposal.

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