Bank should have warned about couple's second loan

Categories:
Financial abuse of the elderly
Summary:
Sue and her husband Chris 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 tasked for more money to cover court fees, taxes, bank transaction fees and insurance.

After two months, Sue and Chris had sent $100,000, using up all of 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. 

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.  

Sue and Chris complained to the bank that it should have asked further questions about why they were breaking their term deposits and obtaining 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. 

Our investigation

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

It isn’t standard practice for a bank to question a customer about the reasons for withdrawing funds. Unless a 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. Sue and Chris had also given reasons for breaking their term deposits, which wouldn’t have alerted a reasonable bank employee to the fraud. 

We next considered Sue and Chris’ 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 a “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 where 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. Furthermore, if the bank had warned them, they might not have heeded the advice because 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 the couple. They 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 Sue and Chris were denied the opportunity to reflect on the wisdom of borrowing more money. 

Outcome

We considered it fair and reasonable for each side to bear half of the second loan. The complaint was concluded on that basis.

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