better banking

Case - 49815

2016 - 2017

Payment systems

Foreign exchange

Mrs G, who lived overseas, instructed a law firm to act for her in buying a property in New Zealand. She transferred funds into the firm’s United States dollar account. There was confusion about the size of the deposit. Both the firm and the bank mistakenly believed she had transferred about twice as much as was necessary. A week before settlement, Mrs G gave instructions to convert all of the funds into New Zealand dollars and place them in a term deposit so she could earn interest until settlement. The firm passed on her instructions to the bank.

The bank replied that it was not in Mrs G’s best interest to convert the entire amount into New Zealand dollars because she would incur unnecessary costs when converting the balance of the funds back to United States dollars. Furthermore, she would earn only a small amount of interest. It suggested she wait until settlement and convert only what was necessary to complete the purchase.

The firm passed on the suggestion to Mrs G and asked her to provide an account number to transfer back the remaining United States dollars. Mrs G instructed the firm to follow the bank’s suggestion, but said she wanted the balance of the funds left in New Zealand dollars and transferred to her New Zealand account. The firm did not pass on this information to the bank.

The funds were converted the day before settlement, at which time the mistake about the size of the deposit was discovered.  The exchange rate had also changed meaning that Mrs G received less than if the funds were converted when she first requested.  She had to transfer more funds to complete settlement. 

The firm said the bank gave bad advice about whether to convert the funds, and asked the bank to compensate Mrs G for the shortfall. The bank declined, but offered Mrs G $5,000 as compensation for the inconvenience she had suffered. Mrs G declined the bank’s offer and the firm brought the complaint to us.

We did not have enough information to determine how the mistake about the size of the deposit arose but considered the bank’s suggestion that she convert only the amount needed to complete settlement and thereby avoid reconversion costs was reasonable.

We did not consider the bank was responsible for the difference in the exchange rates because it explained the reason for its suggestion to the firm and Mrs G.  Mrs G was aware the exchange rate could change and she could either lose or gain money by deciding to wait to convert the funds.

We also found that Mrs G would still have been left with a shortfall even if the funds were converted when she first requested because she did not transfer enough money to begin with.