better banking

Case - 50555

2016 - 2017


Credit card

Mr H had a housing loan and credit card with his bank. When Mr H went $1,000 over the $12,000 limit on his credit card, the bank wrote asking him to repay the overdrawn amount immediately. It warned that failure to do so could affect his credit rating in future.

The same month, Mr H sold his property and repaid his housing loan – but not his credit card debt. The bank’s settlement statement to Mr H’s lawyer did not include this debt.

Shortly after settlement, Mr H visited his local branch. According to Mr H’s version of that visit, he told a bank officer he wanted to close all his accounts, including his credit card account. The bank officer said he needed to pay off $1,000 to close the credit card account. The bank officer did this by transferring $1,000 from Mr H’s current account. As Mr H understood it, the credit card account had been paid off and closed. 

According to the bank, Mr H told the bank officer $12,000 was to be paid into the credit card account as part of the house settlement and the account closed. The bank officer transferred funds from his current account to cover the overdrawn $1,000 plus interest, and closed the credit card account.

Mr H did not pay off the credit card debt of $12,000, and the bank continued to send monthly statements to the property he had sold. Five months later, the house’s new occupants forwarded mail, including bank statements, to Mr H, who learned that interest and late payment fees had increased the amount owing to about $13,000. 

Mr H went to his local branch and spoke to the same bank officer. He said the bank had led him to believe the credit card debt had been fully repaid. The bank officer said she must have made a mistake when she closed the account. She promised to sort out the matter and arrange a refund of interest and fees. The bank officer contacted the cards department. It said there had been no error in closing the account, and that the amount owing was correct. When told this, Mr H challenged the decision several times with his local branch, and eventually the bank issued a demand for full repayment of the debt, which now stood at about $13,200. 

Mr H sought a personal loan to pay for the debt, but the lending officer discontinued the loan application when he learned that the credit recovery team was dealing with Mr H. When the team received no replies to its phone message and email asking him to make contact, it referred the matter to a debt collection agency. It also made a default listing on Mr H’s credit record. After adding the agency’s collection costs, the debt now stood at $14,500. 

Four months later, Mr H made a payment of $9,500, which the bank accepted as full settlement of the debt. It updated the default listing as “paid”. 

Shortly afterwards, Mr H applied to another bank for a business loan. This bank declined the application because of the default listing. 

Mr H complained to us that the bank had led him to believe his credit card had been closed, and that no further money was owing. And when he later learned of the debt and raised it with his local branch it promised to sort out the matter but did not. In these circumstances, he argued, it was unreasonable for the bank to make the default listing, and he wanted it removed. 

We could see that a primary misunderstanding was Mr H’s belief that a credit card account could not be closed when money was still owing. Thus, he believed that, having paid the $1,000 and closed the account, there was no more money outstanding. This is an understandable, if incorrect, belief – and one the bank officer could have avoided by emphasising that the debt of $12,000 remained outstanding despite the account’s closure.

However, the bank wrote to him several weeks before house settlement to say his credit card account stood at $13,000 and that he needed to pay the overdrawn $1,000 immediately. Paying off the overdrawn portion did not make the bulk of the debt go away – a point reinforced by the bank’s settlement statement, which showed no funds had been diverted to pay off the credit card debt.

We therefore found that the bank had not done or said anything to suggest Mr H’s payment of $1,000 put an end to his credit card debt.

We also found that the bank had complied with its obligations when making the default listing. A bank can do this when: a debt is overdue; the bank has written to the customer’s last known address advising of the overdue payment and requesting payment by a set date; the bank has told the customer the debt may be listed with a credit reporting agency if not paid by a set time; and the customer is told the consequences of the listing (that it may affect his or her ability to get credit in the future). 

In Mr H’s case, the bank followed each of those steps. Granted, the bank at one point told him there had been an error and then changed its position, but it did not invalidate any of the steps the bank took. We could not therefore recommend the bank withdraw the listing. Nor could we uphold Mr H’s complaint.