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ombudsman news

issue 23

December 2002

roundup of banking cases

A roundup of some of the banking cases we have dealt with recently.

debit card - implied request for overdraft

Mr M objected when the firm chased him to repay the overdraft on his current account. The main reason for the overdraft was that he had placed two bets with a bookmaker, using the debit card for his current account. He said that the firm was responsible for letting his overdraft arise, since it should not have made the payments if there was not enough money in his account.

complaint rejected
If a customer uses a debit card or a cheque when there is not enough money in the account, the firm is entitled to treat this as a request for an overdraft. It is a matter for the firm's commercial discretion whether to grant the overdraft. If the customer has a good history with the firm, the firm may well agree to do so, sparing the customer the embarrassment of having the payment "bounced". But it is not obliged to do this. We rejected Mr M's complaint.

cash machine - account-holding firm responsible

Mrs T had a bank account with firm A. She tried unsuccessfully to withdraw £30 from this account, using a cash machine owned by firm B, a member of the same cash machine network as firm A. She later managed to withdraw the £30 from another machine.

However, firm A debited her account with the first (unsuccessful) withdrawal as well as with the second one. Firm A said that was not its responsibility and that Mrs T should pursue a complaint against firm B.

complaint upheld
Having examined the records for firm B's cash machine, we were satisfied that Mrs T had not received the first £30. Her complaint was therefore not about firm B's machine failing to issue the money, as firm A had apparently suggested. It was about firm A debiting her account with money she had not received. We required firm A to credit Mrs T's account, and to compensate her for the inconvenience it had caused by trying to fob off her complaint.

credit card - trader misled about available facilities

Mr Z set up a specialist travel agency with £12,000 of his own money. In April 2001, he opened a business account with the firm after meeting one of the firm's business managers.

Mr Z expected to do most of his business by phone or through the internet, so he wanted to have the facility to accept credit card payments. The manager told him this would be possible after his company had been trading for a probationary period of six months.

During this time, Mr Z invested more money in the business, including a loan from the firm. However, at the end of the probationary period, the firm would not enable him to accept credit card payments. It said this was a matter of policy, since it considered this type of travel agency too high-risk for such facilities.

complaint upheld
There was nothing wrong with the firm having a policy of refusing credit-card-acceptance facilities to types of business it considered high-risk. But the firm's business manager should have known that this policy applied to this type of travel agency.

Mr Z would not have invested so much extra money in his business if the manager had not led him to believe he would be able to accept credit cards after a satisfactory probationary period. We required the firm to write off the loan it had made, and to pay Mr Z a further £2,500.

personal loan - churned - insurance cover lost

In 1999, Mr C took out a £7,000 personal loan with the firm, which included the cost of insurance to cover his repayments if he lost his job. Two years later, in 2001, his employers reduced his hours and he fell behind with his payments. The firm's debt management team advised him to take out a new £5,000 loan to cover the balance of the old one.

In 2002, Mr C was made redundant. When he tried to claim on his redundancy insurance, he discovered that the new loan had no insurance cover.

complaint upheld
We decided that Mr C would not knowingly have given up redundancy insurance in 2001, when he was already working shorter hours. The firm should not have advised him to take the new loan without making it clear to him that the insurance cover would lapse and that there was no redundancy cover on the new loan. We required the firm to make up the insurance benefits Mr C had lost.

personal loan - maladministration - financial difficulties

Mr Q took out a £3,000 personal loan, and kept up the payments for three years. Then he took out a £6,000 loan. He agreed with the firm that it would use part of this to pay off the balance of the first loan. It would then credit the rest to his current account, where he planned to use it to cover the costs of moving house.

By mistake, the firm credited all £6,000 of the second loan to Mr Q's current account and failed to pay off the first loan. So Mr Q was making repayments from his current account for the original loan, as well for the new one. It was only when his current account became overdrawn a year later that he became aware of the problem.

complaint upheld
The position was clear from Mr Q's bank statements. But he convinced us he had never looked at these - he had just checked his balance from time to time. Under the Consumer Credit Act, the firm should have documented both loans but it could not produce any evidence that it had done so.

We required the firm to write-off the first loan and to pay Mr Q £200 for inconvenience. We also required it to refund, with interest, the payment protection insurance premium it had included in the second loan. This was designed for people in employment and Mr Q was retired.

secured loan - not affected by bankruptcy discharge

In 1992, Mr D took out a second mortgage on his home to secure his overdrawn business account.

Two years later, in 1994, he became bankrupt. The firm decided not to repossess the house because at that time it was only worth enough to pay off the first mortgage.

Mr D was discharged from bankruptcy in 1997. That year, and the following year, the firm sent him statements showing the amount he still owed it. Then in 2001 it told him that as the value of the house had increased sufficiently to pay off both mortgages, he would have to repay his debt or sell the house.

Mr D then queried the existence of the second mortgage and complained about the firm's delay in recovering its debt.

complaint rejected
We were satisfied that the second mortgage existed. It had been a legitimate exercise of the firm's commercial judgement to wait until the house had increased sufficiently in value to cover its debt. The firm had continued to monitor the property's value.

We thought the firm could have done more to keep Mr D informed. But we did not think it appropriate to award any compensation for this. Mr D had benefited from the firm's delay. He had continued to occupy part of the property and had obtained income from letting the rest.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.