When you instruct your bank to make a payment, it must carry out your instructions. In some circumstances, however, your bank can refuse to follow your instructions. It can suspend the operation of your account. This is called suspending, or freezing, an account and means you cannot make any withdrawals.
A bank’s powers to suspend an account are set out in its standard terms and conditions (as well as in the Code of Banking Practice, which specifies minimum standards of good banking practice for New Zealand banks). You can view these online or at your bank.
In general, a bank’s terms and conditions allow it to freeze an account:
- to comply with a court order
- when you have been declared bankrupt
- when there isn’t enough money in your account
- when it has been notified of a dispute over either who owns the money in the account or who has use of the account
- to protect either one or all parties to the account, the bank or a third party with a reasonable claim to an interest in the account.
Sometimes a bank may simply freeze a certain sum of money in your account, such as when a court order applies to a specific sum that is less than the total amount in your account.
A bank may also partially suspend the operation of an account and allow some payments to be made – such as when a bank suspends a business account but allows payment of wages to employees.
Suspending an account during a dispute
A bank can suspend an account if there is a dispute about how an account is used or who owns the funds in it. For example, one of the account holders to a joint account may be in dispute with another account holder and ask the bank to suspend the account. Or, a bank may suspend a company account when one director tells the bank he or she is in dispute with another director. The bank may also suspend an account at its own discretion if it becomes aware of a dispute.
In such cases, it is not the bank’s role to consider or resolve the dispute. The disputing sides must work it out themselves. The suspension will stay in place until that happens.
We do, however, expect a bank to take certain steps when there is a dispute about an account. It must:
- check whether there is a genuine dispute, and if so
- suspend the account in accordance with the account terms and conditions
- notify the disputing sides of:
- the suspension and why it has been put in place
- what they must do before the bank will lift the suspension (usually reach an agreement and complete a new mandate).
A bank may also advise the disputing sides that they make have to take the matter to court if they cannot reach an agreement.
A bank does not have to tell account holders before suspending an account. This is mainly to protect the funds in it. Telling an account holder in advance would give him or her the opportunity to withdraw money. However, a bank must tell the account holder or holders after it has frozen the account, ideally as soon as possible afterwards. This notification extends to every account holder. A bank cannot simply rely on one individual telling the others.
A bank can suspend an account because the customer has insufficient funds to make payments or is in arrears. Banks can also put a hold or stop on the customer’s card. The customer needs to either transfer funds, if available, into that account, or arrange to repay the money. The bank will then lift the freeze.
Bank's information unclear and notification incomplete
A dispute arose between two members of an extended family who operated a partnership to manage their properties. The partnership’s bank accounts required two account holders to approve transactions. One member, Morgan, threatened to freeze the partnership’s bank accounts. The other member, Logan, asked the bank whether it could freeze accounts on the instruction of one account holder only. The bank replied that it could freeze accounts if asked by two or more account holders. This response left Logan satisfied that his position was secure.CASE 2
Bank follow-up missing after it froze accounts
Kiri was treasurer of a committee supervised by a trust. There was a disagreement between trustees and committee members about whether the trustees were entitled to access financial information held by the committee. One trustee, Tony, approached the committee’s bank for statements and documents about committee accounts. Tony and a former trustee also expressed concern to the bank about the way the committee accounts were being operated.CASE 3
Church conflict not bank's problem to resolve
Ravi and his wife Hana were members of a church congregation. The church had two constitutions, one apparently a replacement for the other. A conflict arose within the church’s governing committee and wider congregation about control of the church and which constitution applied. One group sought a legal opinion, and the other group engaged lawyers to respond.
Deceased customers' accounts
A bank will freeze a deceased customer’s individual accounts when notified of the death. This includes transactional accounts, term deposits, credit cards and loans.
Banks won’t necessarily know that a customer has died. Indeed, it is more likely – and should be assumed – they don’t know. Therefore, it is important to notify the bank as soon as possible. Anyone can notify the bank but typically this responsibility would fall on the next of kin or the estate representatives. The bank may ask for identification from the person notifying the bank as well as a copy of the death certificate.
A bank can take instructions about a deceased person’s accounts only from someone authorised to act on behalf of the deceased’s estate. As well, it can give information about the accounts only to those entitled to request it. That’s because a bank’s duty of confidence to customers does not end with their death. (See also our guide on privacy and confidentiality.) This means next of kin and estate beneficiaries cannot give instructions to a bank or require a bank to give them information about a deceased person’s bank account. It also means we can rarely look into complaints about a deceased customer’s accounts from anyone other than the executor or administrator of the estate.
The legal process is usually to obtain probate or letters of administration from the High Court. This allows executors or administrators to deal with the deceased’s property, including his or her bank accounts.
Having obtained probate or letters of administration, an executor or administrator will typically set up an account called “the estate of [deceased’s name]”. The bank will then transfer funds from the deceased customer’s accounts to the estate account before closing the individual’s accounts. The executor will distribute funds from the estate account according to the terms of the will and then close the estate account.
If the deceased has no will and the estate is worth less than $15,000, the bank may forward money in the deceased’s accounts to his or her next of kin. But the bank must be satisfied the person is dead and that no application has been made to the High Court to administer the estate. In such circumstances, the bank will probably want to see a copy of the deceased’s death certificate and information about the next of kin. Even then, the next of kin may not necessarily be entitled to information about the deceased’s accounts, and may have to seek letters of administration from the court in order to access that information.
When a customer dies, all signing authorities on that person’s accounts and any power of attorney authority are no longer valid. Signing authorities allow a person to operate an account in the name of another person despite not owning the funds. A power of attorney is a wider power and enables someone to act on behalf of another person in specific areas or in all matters.
If a deceased customer had a joint personal account, the account will usually be transferred into the remaining account holder’s name, or names if there is more than one. This step will be more complicated if there is debt (particularly a loan secured by a mortgage over a property).
To learn more about estates, we suggest you talk to your bank or lawyer. See also our guides on account mandates and power of attorney.
Our rules require us to look only at complaints from those who received the financial service about which they are complaining. When someone dies and the High Court grants probate or letters of administration, the executor of the will or administrator of the estate becomes the deceased’s representative and can make a complaint on his or her behalf. We cannot look at complaints if probate or letters of administration are pending or have not yet been sought. Nor can we consider complaints from next of kin or estate beneficiaries if these documents have been granted (unless the executor or administrator agrees).
In some limited circumstances, we may be able to consider a complaint from next of kin or estate beneficiaries if the estate is worth less than $15,000 and the High Court granted no document.
Children don’t have unrestricted use of bank accounts. Nor are they free to open bank accounts on their own. To do that, they need an adult’s involvement. The role of adults (usually the parents) is to decide what type of account would be best for the child. They also decide who can have access to the account.
The rules governing who can operate an account are set out in a document called an account mandate (also known as an account signing authority). An account mandate spells out who has access to an account and how that access will work. Parents may decide they alone will have access to the account. Or they may decide to operate the account jointly with the child. Or they may choose to give the child (depending on age) sole access.
We sometimes receive complaints from parents concerned that their child has been able to access an account without their knowledge or authority. We also receive complaints from one parent that the other (usually estranged) parent is operating their child’s account in a way the first parent does not approve of. In such cases, we check the account mandate because it records the parent or parents’ intentions at the time of the account’s opening about how the account is to be used.
Understanding clearly who has signing authority is vital to avoid a child or parent operating an account (or spending the funds in it) in a way that is contrary to everyone’s expectations at the time the account was opened.
Types of children’s accounts
Banks offer accounts geared specifically to children (Children are deemed minors until the age of 18, when they become adults). Such accounts have different restrictions about control of the account. The restrictions are usually related to a child’s age.
A parent will generally operate an account for a very young child (say, under seven). As the child gets older, the bank’s terms and conditions usually allow a wider range of activities, such as making withdrawals, setting up internet banking and getting a debit card. Children closer to adult age typically can open and manage their own savings accounts, do internet and phone banking and use ATMs to access their accounts.
Parents can also open a standard savings account in a child’s name, but with themselves as sole signatories of the account. They can also open an account, with themselves and the child as joint account holders. Finally, they can even open what is, in effect, a kind of trust account: an account in their names (allowing them full access to the funds in it), but on the understanding those funds are to be used for the benefit of the child.
Banks must give accurate – and sufficient – information to parents about the types of children’s account they offer so parents can make an informed decision about which type of account will best suit their needs.
Banks have the same obligations to under-18 customers as they do to adult customers: they must be fair and reasonable in their dealings and must act on customers’ instructions in accordance with the account mandate.
Ownership of money in a child’s account
In general, the account holder owns the funds in an account. Therefore:
- If an account is in a child’s name, the child owns the funds.
- If a parent and a child are joint account holders, the parent and child are joint owners of the funds.
- If a parent is a signatory to an account, but not an account holder, the parent does not own the money (although he or she has control over how the account is operated while still a signatory).
- A child who is the sole account holder can, on reaching 18, change or remove the signatories and operate the account alone.
Complaints about children’s accounts
Most complaints we receive are about who controls or has access to accounts. Typical complaints include:
- A parent has asked a bank to set up a children’s account in a way that prevents a child from accessing the account on his or her own, but the child has nonetheless been able to withdraw money.
- A bank has not given a parent good advice about the best way to set up a children’s account, and the child or other parent has used the funds in the account for purposes other than those the first parent had in mind when setting up the account.
- A bank has allowed one parent, following a relationship breakdown, to remove the other parent from the account mandate, or withdraw the money in the child’s account, or close the account.
When parents complain that, contrary to their intentions, a child has been able to access an account and spend the money in it, the problem is usually either that:
- the account mandate was set up to allow the parents or the child to operate the account – a fact the parents were unaware of or had forgotten, or
- the bank failed to set up the account properly or allowed withdrawals to be made contrary to the account mandate.
In looking into such complaints, we check:
- the information the parents gave the bank when setting up the account
- the account’s terms and conditions
- the account mandate.
(We conduct the same checks when one parent complains that the other has withdrawn funds from a child’s account or closed the account.)
Sometimes we will find that a bank set up an account that did not correspond with what the parents said they needed.
Parents sometimes regard funds withdrawn and spent by a child contrary to their wishes as “lost” money, and they seek full reimbursement. However, we do not necessarily regard money spent by a child as a loss if the account is in the child’s name. In depositing money into the child’s account, the child becomes the owner of the funds.
There are, however, situations where we may find that the money spent by a child is a loss. For example, when:
- The bank did not set up the account appropriately.
- The child is the account owner, but is not authorised to operate it.
- The parents told the bank they were putting their own money into the child’s account.
- The money was to be used for a specific purpose.
In addition, we can consider compensation for any stress and inconvenience the parents suffer from receiving inadequate or incorrect advice from the bank when the account was set up.
A bank can end its relationship with a customer at any time, just as a customer can move to another bank at any time. A customer may move because a competitor offers a better deal or because the relationship with the bank is unsatisfactory or has broken down. A bank may decide to close a customer’s account because of how that person has been operating it, or because the bank also feels the relationship has broken down. Banks are under no obligation to continue doing business with a person or company, but they should not close an account without good reason.
Generally, a bank should not close your account without giving reasonable notice, which typically means giving you enough time to make alternative banking arrangements.
The Code of Banking Practice says a bank will not normally close a customer’s account until it has provided at least 14 days’ notice.
In some limited circumstances, however, a bank can close your account without giving you any notice. These may include:
- if a bank is complying with a court order
- if you have acted illegally
- if you have breached the bank’s terms and conditions
- if you have acted abusively towards bank staff.
A bank does not have to explain why it is closing a customer's account, although in most cases banks follow good practice and give a reason. This gives the customer an opportunity to respond if the bank has misunderstood the facts of a situation or made a mistake.
A bank must return all the money in a customer's account at the time it closes the account, less any interest or fees that apply. A bank normally does this by sending a cheque to the last known address.
How we look at closure complaints
Complaints about a bank closing an account usually involve a customer challenging the bank’s reasons for doing so. Two of the most common reasons why a bank closes an account are:
- the customer has used the account inappropriately – for example, the account is continually going into unarranged overdraft
- the customer has abused a staff member in some way, either verbally or physically.
In the first situation, it can be costly for a bank to monitor an account that is in overdraft. Therefore, a bank may decide that it does not wish to continue to offer this facility to a customer.
In the second situation, a bank has a duty as a good employer to protect its staff from abuse and violence. In these circumstances, we would expect a senior member of the bank who was not subjected to the abuse to make the decision to close the account.
Most people who complain to us about their account being closed want us to either stop the bank from closing their account or to get the bank to reopen their account. However, although we can award compensation for direct loss or inconvenience if we find some wrongdoing in the way the bank closed the account, we cannot require a bank to stop the closure of an account or reopen one.
If a complaint is solely about a bank's decision to close an account, and there are no concerns about how it was done (such as if the bank failed to give adequate notice), then it is unlikely we will investigate.
Occasionally we receive complaints about account closures which are related to anti-money laundering legislation. For more information on this, see our Quick Guide on Anti-Money laundering.