Bank complied with responsible lending obligations in romance scam

Categories:
Concerns about lending decisions, Common scams targeting bank customers
Summary:
Laura’s mother, Sally, fell victim to a romance scam. Over three months, she sent $500,000 overseas to a fraudster (through a money remittance service) and then obtained three bank loans totalling $365,000 so she could send more funds to the fraudster. Laura uncovered the scam six weeks after she got the third loan and sent those funds overseas. Laura complained to the bank that the many transfers from her mother’s account to the money remitter, along with the subsequent lending requests, should have alerted the bank to the fraud. She also complained that the lending itself was irresponsible, saying her mother was in her 60s and about to retire.
Published:
December 2020

Our investigation

We found that the bank had complied with its responsible lending obligations. Despite her age, Sally had investment properties that were used as security and generated an income to help with repayments. We noted it was not unusual to lend to older customers with investment properties who may not be working or who may be stopping work before the end of the loan term. There was no obligation on the bank to monitor Sally’s transfers to the money remittance service. Plus, she had given credible reasons for the first two loan applications, which would not have alerted the bank to the possibility she was the victim of a scam and was sending money overseas. 

However, by the third loan we considered the bank ought to have noticed something might be amiss. Sally said she needed this $165,000 loan for “business retainers” for her partner. The bank officer asked outright: “Is this a scam?” Sally replied no and the bank officer proceeded with the loan application. We found there were enough warning signs at this point that the bank should have asked more questions to satisfy itself it was not a fraud. As well as asking for a large amount of money from which she was deriving no direct benefit, there was also the fact she applied for this short-term loan just 12 days after getting her last loan. However, we considered she would have given credible answers to any further questions from the bank that would have satisfied the bank: she had done her own research and was convinced about the legitimacy of the person to whom she was sending the money. Her other actions also indicated she was eager to proceed with the lending and would do what was required to get it.

While we found the bank should have asked more questions on the third loan to satisfy itself it was not a fraud, we considered Sally would have provided credible responses to the bank and would have ignored any warning about it being a scam. We therefore could not find the bank responsible for the loss she suffered.

Outcome

We issued a decision confirming we could not uphold her complaint.

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