Consumer affairs - Should banks be allowed to make mistakes?
The Malta Financial Services Authority last week issued its first annual report on consumer complaints, including case studies of how its Consumer Complaints Unit handled issues in different areas.The unit said it had considered a number of situations...
The Malta Financial Services Authority last week issued its first annual report on consumer complaints, including case studies of how its Consumer Complaints Unit handled issues in different areas.
The unit said it had considered a number of situations relating to consumers asking for compensation from their bank on the basis of inconvenience they suffered when their bank made a mistake.
"Some consumers have become more demanding and argue (rightly or wrongly) that banks should be more careful in their dealings with customers and to compensate them adequately if they are at fault. Consumers argue that if they are at fault the bank will slap a tariff charge and therefore the principle of "errant must pay" should apply to the banks as well," it said.
Funds deposited in wrong account
In the first case notes, the complaints unit said that Mr P, a self-employed person, alleged that he had suffered financial damages of Lm1,000 when a bank, on two separate occasions within a very short space of time, mistakenly deposited funds which did not belong to him in his account.
His wife contacted the bank and upon becoming aware of the mistake, the bank immediately reversed the transactions.
In the meantime, Mr P made a number of cheque payments and, given the bank's reversal, one of the cheques was referred to drawer (with the bank charging him for the referral). Mr P was exasperated.
In his complaint form, Mr P explained that he lost a day's work to be able to meet and discuss his case with the bank's branch manager.
Mr P alleged that he had to sub-contract the day's work to another person and was claiming Lm1,000 in foregone income. The bank did not accept the unit's argument that the token gesture (a voucher of Lm30) which it offered was a pittance given the allegations brought forward by the complainant. Moreover, the bank remarked that Mr P did not need to miss a day's work and that he could have easily made an appointment with the bank manager. The bank claimed that the gesture it offered was commensurate with what it described as a small mistake.
Although the unit informed Mr P about the bank's position, no further feedback was received.
Information divulged to third parties
Mrs T had investments with a local bank. At one point she introduced her son to her bank manager to discuss financial planning. Later, her son approached his mother's manager to enquire about a loan of a substantial amount. The manager replied that, given the amount and the purpose of the loan, he should ask his mother for funding.
After a few days, the bank sent an unsigned valuation report to Mrs T's son in which all his mother's investments were disclosed, including market values. Mrs T never gave instructions to the bank to disclose such information to her son. She complained bitterly with the bank, which, following an investigation, admitted its mistake, which it described as being an administrative error made in good faith.
Mrs T was offered a weekend break in a five-star hotel. She refused the bank's offer and demanded financial compensation amounting to 15 per cent of the value of her investments. The bank refused her claim.
Mrs T was made aware by the unit that she had not proved that she suffered any financial loss as a result of the bank's error. However, it was pointed out that the bank had been somewhat careless by divulging information to third parties even though this was carried out in good faith.
The case was referred to the MFSA's Banking Unit for any regulatory action deemed appropriate in the circumstances. Mrs T was informed that any regulatory action taken against the bank could not be divulged.
It was also explained that the MFSA could not determine the extent of damages allegedly suffered by Mrs T. Even though she was adamant that her claim was justified, she never furnished a reason to back her claim for financial loss.
Mrs T was also advised that she could refer the matter to the courts. However, in order to attempt to seek a compromise, the unit enquired about the practice used by overseas financial redress schemes when faced with similar situations.
Mrs T was informed that the UK's financial ombudsman had very specific views about similar situations and awarded very modest sums for moral damages, normally around Lm200. Only in very exceptional cases would the award be higher. She was advised that such information was only being provided for information purposes and she was cautioned that the unit was not in a position to apply the UK's rules in Malta.
The bank eventually made a cash offer in full and final settlement. The complainant is still considering the offer.
Deduction of charges without notification
Mr K and a business partner approached a bank in order to obtain a loan to develop property. The seller of the property did not appear for the signing of the promise of sale agreement and, hence, the bank was informed that the loan was no longer required.
A few days after, Mr K noticed that Lm600 had been deducted from his personal account for processing fees. He objected on the grounds that the loan was meant for a business project, which never materialised. He claimed that he never gave instructions for his personal account to be debited with any fees. It also transpired that the bank did not request payment from his business partner (they could not deduct their fees because this person did not have accounts with the bank). The unit held a series of discussions with the bank to ascertain whether the bank was correct in deducting the fees from a personal account without authorisation. The bank remarked that when Mr K and his business partner approached the bank, there was a certain degree of urgency. It stated that within 48 hours, the bank had approved the sanctioning of a rather large amount.
Documentation provided by the bank showed that the branch was very keen to attract business from the complainant's business partner, who banked with a competing bank.
It was evident, however, that the bank dedicated resources to process the loan and also requested Mr K and his business partner to provide documentation in support of their intended plans. The bank insisted that it was not its fault that the deal never materialised and it was reasonable to request fees for services rendered. Given the amount of the loan, fees (based on a percentage of the whole amount of the rather substantial loan) came to a rather hefty amount. However, the bank agreed to reduce the fees by half.
The unit informed the bank that it is not acceptable to debit an account in this manner. Moreover, it was incumbent on the bank to make the list of tariffs accessible to all prospective and present customers to ensure that everyone was aware of what was due to the bank and at what stage.
Indeed, it transpired that the bank would not have applied the processing fee had the deal been successful. The bank in fact told Mr K that if he requested another loan for a project and this was successful, then the fees incurred for the loan would be refunded. Moreover, it transpired that sometime after the complaint was lodged, in what appeared to be an attempt to treat both partners equally, the bank sent a short letter asking for payment of the business partner's share of fees (nearly nine months after the complainant's account was debited).
The unit recommended that the bank should reimburse the full amount of fees deducted from Mr K's account. Finally, the bank accepted the unit's recommendation.
The unit said it had considered a number of situations relating to consumers asking for compensation from their bank on the basis of inconvenience they suffered when their bank made a mistake.
"Some consumers have become more demanding and argue (rightly or wrongly) that banks should be more careful in their dealings with customers and to compensate them adequately if they are at fault. Consumers argue that if they are at fault the bank will slap a tariff charge and therefore the principle of "errant must pay" should apply to the banks as well," it said.
Funds deposited in wrong account
In the first case notes, the complaints unit said that Mr P, a self-employed person, alleged that he had suffered financial damages of Lm1,000 when a bank, on two separate occasions within a very short space of time, mistakenly deposited funds which did not belong to him in his account.
His wife contacted the bank and upon becoming aware of the mistake, the bank immediately reversed the transactions.
In the meantime, Mr P made a number of cheque payments and, given the bank's reversal, one of the cheques was referred to drawer (with the bank charging him for the referral). Mr P was exasperated.
In his complaint form, Mr P explained that he lost a day's work to be able to meet and discuss his case with the bank's branch manager.
Mr P alleged that he had to sub-contract the day's work to another person and was claiming Lm1,000 in foregone income. The bank did not accept the unit's argument that the token gesture (a voucher of Lm30) which it offered was a pittance given the allegations brought forward by the complainant. Moreover, the bank remarked that Mr P did not need to miss a day's work and that he could have easily made an appointment with the bank manager. The bank claimed that the gesture it offered was commensurate with what it described as a small mistake.
Although the unit informed Mr P about the bank's position, no further feedback was received.
Information divulged to third parties
Mrs T had investments with a local bank. At one point she introduced her son to her bank manager to discuss financial planning. Later, her son approached his mother's manager to enquire about a loan of a substantial amount. The manager replied that, given the amount and the purpose of the loan, he should ask his mother for funding.
After a few days, the bank sent an unsigned valuation report to Mrs T's son in which all his mother's investments were disclosed, including market values. Mrs T never gave instructions to the bank to disclose such information to her son. She complained bitterly with the bank, which, following an investigation, admitted its mistake, which it described as being an administrative error made in good faith.
Mrs T was offered a weekend break in a five-star hotel. She refused the bank's offer and demanded financial compensation amounting to 15 per cent of the value of her investments. The bank refused her claim.
Mrs T was made aware by the unit that she had not proved that she suffered any financial loss as a result of the bank's error. However, it was pointed out that the bank had been somewhat careless by divulging information to third parties even though this was carried out in good faith.
The case was referred to the MFSA's Banking Unit for any regulatory action deemed appropriate in the circumstances. Mrs T was informed that any regulatory action taken against the bank could not be divulged.
It was also explained that the MFSA could not determine the extent of damages allegedly suffered by Mrs T. Even though she was adamant that her claim was justified, she never furnished a reason to back her claim for financial loss.
Mrs T was also advised that she could refer the matter to the courts. However, in order to attempt to seek a compromise, the unit enquired about the practice used by overseas financial redress schemes when faced with similar situations.
Mrs T was informed that the UK's financial ombudsman had very specific views about similar situations and awarded very modest sums for moral damages, normally around Lm200. Only in very exceptional cases would the award be higher. She was advised that such information was only being provided for information purposes and she was cautioned that the unit was not in a position to apply the UK's rules in Malta.
The bank eventually made a cash offer in full and final settlement. The complainant is still considering the offer.
Deduction of charges without notification
Mr K and a business partner approached a bank in order to obtain a loan to develop property. The seller of the property did not appear for the signing of the promise of sale agreement and, hence, the bank was informed that the loan was no longer required.
A few days after, Mr K noticed that Lm600 had been deducted from his personal account for processing fees. He objected on the grounds that the loan was meant for a business project, which never materialised. He claimed that he never gave instructions for his personal account to be debited with any fees. It also transpired that the bank did not request payment from his business partner (they could not deduct their fees because this person did not have accounts with the bank). The unit held a series of discussions with the bank to ascertain whether the bank was correct in deducting the fees from a personal account without authorisation. The bank remarked that when Mr K and his business partner approached the bank, there was a certain degree of urgency. It stated that within 48 hours, the bank had approved the sanctioning of a rather large amount.
Documentation provided by the bank showed that the branch was very keen to attract business from the complainant's business partner, who banked with a competing bank.
It was evident, however, that the bank dedicated resources to process the loan and also requested Mr K and his business partner to provide documentation in support of their intended plans. The bank insisted that it was not its fault that the deal never materialised and it was reasonable to request fees for services rendered. Given the amount of the loan, fees (based on a percentage of the whole amount of the rather substantial loan) came to a rather hefty amount. However, the bank agreed to reduce the fees by half.
The unit informed the bank that it is not acceptable to debit an account in this manner. Moreover, it was incumbent on the bank to make the list of tariffs accessible to all prospective and present customers to ensure that everyone was aware of what was due to the bank and at what stage.
Indeed, it transpired that the bank would not have applied the processing fee had the deal been successful. The bank in fact told Mr K that if he requested another loan for a project and this was successful, then the fees incurred for the loan would be refunded. Moreover, it transpired that sometime after the complaint was lodged, in what appeared to be an attempt to treat both partners equally, the bank sent a short letter asking for payment of the business partner's share of fees (nearly nine months after the complainant's account was debited).
The unit recommended that the bank should reimburse the full amount of fees deducted from Mr K's account. Finally, the bank accepted the unit's recommendation.