Bank acted correctly in advancing credit that was later lost in scam

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Bank acted correctly in advancing credit that was later lost in scam

Categories:

Credit laws and banking, Fraud & scams,

Summary:

Pia and her husband owned their home and a separate piece of bare land. Both properties were security for joint revolving credit facilities at their bank. In 2021, they decided to put their home on the market and build on the land. They approached the bank about their plans and obtained a $50,000 top-up to start construction. Their property sold a short time later. On the sale of the property, the bank required them to repay $157,000 of their debt to reduce their borrowing limit to $150,000. They were able to keep the remainder of the proceeds, $630,000, which they put in their revolving credit facility, creating a credit balance of $480,000. Seven months later, Pia learned her husband had withdrawn $570,000 – almost all the money from the revolving credit facilities – and put it into overseas investments that turned out to be a scam. They lost all of this money, and Pia separated from her husband.

Published:

August 2024

She complained to the bank that it should not have allowed them to keep any of their revolving credit facilities after the sale of their home without completing an assessment to ensure they could afford the facilities. She also complained that the bank should not have allowed the funds to be used without invoices or confirmation that the funds were being used for their intended purpose – to build a home. In addition, she said the bank should have alerted her to the withdrawals her husband was making.

Our investigation

In reviewing bank diary notes and records relating to the facilities, we found the bank had acted on Pia and her husband’s request when it allowed them to retain loan facilities of $150,000 after the sale of their home. The records showed the bank had considered the value of the bare land when agreeing to this. The bank had properly assessed the affordability of the facilities at the time they were advanced, and the bank did not have an obligation to ensure those facilities were used to build on their land. We also found the facilities operated as joint transactional accounts that both Pia and her husband were able to access with cards attached to the account. Pia’s husband was able to make withdrawals from the account alone, and the bank did not have an obligation to alert Pia to the transactions, although the transactions were available on account statements available to Pia.