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ombudsman news

issue 90

November/December 2010

banking complaints involving the use of power of attorney

In some of the banking complaints referred to us the consumer has given someone else a formal written authority to act for them - in the form of a power of attorney. This is a legal authority given by one person (the "donor") to another person or persons (the "attorney" or "attorneys") to conduct the donor's financial or legal affairs.

Some types of power of attorney automatically come to an end if the donor loses mental capacity. Other types - known as "enduring", "lasting" or "continuing" powers of attorney - can continue in force even after the donor loses mental capacity, although (depending on the type of power of attorney) some additional legal formalities may be required.

Important changes in the law about powers of attorney came about in April 2001 for Scotland and in October 2007 for the rest of the United Kingdom. The changes did not undo powers of attorney that had already been given before then. But they meant that new powers of attorney given after those dates were subject to different rules around their effect and how (and when) they needed to be registered with the Office of the Public Guardian or the Office of the Public Guardian (Scotland).

The complaints we see suggest that consumers and bank staff are sometimes confused or uncertain about the different rules for old and newer types of powers of attorney, and about how the power of attorney should operate in practice, in relation to banking transactions. Powers of attorney are most frequently given because the donor is elderly or vulnerable in some way. This can give rise to situations that require sensitive handling by the bank. For example, if it has reason to believe the attorney may be abusing their power, then it may have to balance its duty to act on the instructions of the person to whom the customer has given power of attorney with its wider concern to protect its customer.

Our approach when dealing with cases involving powers of attorney has not altered since we last featured this topic in ombudsman news (issue 52, April 2006). The following cases illustrate some of the more typical types of complaint we receive.

issue 90 index of case studies

  • 90/10 - consumer complains of delays, inconvenience and unnecessary legal costs caused by bank's errors and misunderstandings relating to powers of attorney
  • 90/11 - bank allowed consumer to continue exercising power of attorney after it had ceased to have legal effect
  • 90/12 - consumer with power of attorney objects to bank's internal procedures for noting the power in its records
  • 90/13 - consumer and bank both misunderstand need for formal registration of enduring power of attorney
  • 90/14 - bank seeks donor's agreement before agreeing to attorney's request to transfer funds

consumer complains of delays, inconvenience and unnecessary legal costs caused by bank's errors and misunderstandings relating to powers of attorney

Mrs C complained about the poor service provided by the bank where her parents, Mr and Mrs K, had a joint mortgage account and individual current accounts.

When Mrs C's father became seriously ill he arranged for her to have lasting power of attorney, so she could take over the running of his financial affairs. And shortly after this, Mrs C also obtained lasting power of attorney over her mother's affairs, enabling her to manage her mother's finances as well, if this became necessary.

After ringing the bank to explain that she now had the two powers of attorney, Mrs C was advised to take all relevant documents, together with proof of her own identity, to a local branch of the bank. She did this, and was told by a member of staff that he would "make a note of the situation".

A short time after this, Mr K died. Mrs C was his executor and she visited the bank branch to get some information about her late father's accounts, in order to apply for a grant of probate.

She took with her a copy of her late father's death certificate, together with his will. However, the bank refused to give her the information she asked for. It said it would first need to see proof that Mr K had given her power of attorney over his affairs.

Mrs C explained that she had already provided this proof but the bank insisted that it had no record of it. She was therefore unable to obtain the information she needed until the following day, when she returned to the bank with proof of her identity and with a copy of the power of attorney in respect of her late father's affairs.

She also brought the power of attorney relating to her mother's affairs. She asked the bank to check that it had now made a proper record of all the paperwork she had brought in - and she was told that all relevant details had been "put on file".

Not long after this, Mrs K decided to rearrange her mortgage. She asked her daughter to contact the bank and make all the arrangements on her behalf. However, the bank refused to accept that Mrs C had any authority to act for her mother. It said Mrs K would have to come in to the branch herself to discuss the changes to her mortgage.

The bank added that, because of "an unfortunate oversight", it had forgotten to remove Mr K's name from the joint mortgage account when Mrs C had brought in a copy of his death certificate. So it said that before it could now take any action in connection with the mortgage, Mrs K would have to ask her solicitor to arrange the transfer of the mortgaged property into her sole name.

After visiting a solicitor with her mother, Mrs C wrote to the bank to complain - on behalf of her mother and of her late father's estate - about its poor standard of service. She said the bank's poor administration had caused considerable inconvenience. She also said the bank had misinformed her, as the solicitor had told her there was no need for his involvement.

Mrs C asked the bank to reimburse her for the cost of seeing the solicitor. She also wanted the bank to pay compensation for the time she had spent "dealing with matters resulting from the bank's incompetence".

She quoted the amount of compensation she considered appropriate, based on a multiple of the daily rate she charged clients of her own business. She asked the bank to pay this sum to a charity of her mother's choosing.

The bank accepted that there had been "some service failures" and it agreed to reimburse the solicitor's fee. It also offered £50 as a "goodwill payment". Mrs C did not consider this was adequate, and she eventually referred her complaint to us.

complaint upheld
It seemed to us that the bank had not properly understood the effect of the various documents that Mrs C had provided. In particular, it had failed to appreciate that the power of attorney given by her father was no longer relevant, following his death.

The bank had admitted its mistake in not making the necessary amendments to the joint mortgage, after Mrs C had given it a copy of her father's death certificate. And it had incorrectly told Mrs C that her mother needed the services of a solicitor before it could carry out changes to the mortgage.

Overall, we were satisfied that the bank's failings had caused Mrs C real inconvenience. However, we did not agree that compensation should be linked to a multiple of her professional daily rate, or that the bank should be required to pay this sum to charity.

We told the bank that in addition to reimbursing the solicitor's fee, it should pay £500 compensation to Mrs K, in line with our published approach to compensation for non-financial loss.

bank allowed consumer to continue exercising power of attorney after it had ceased to have legal effect

Mrs J, who was elderly and in frail health, arranged for her son to have an ordinary power of attorney so he could deal with her financial affairs.

Within a few months, Mrs J's condition had deteriorated to the extent that her local social services rang the bank to let it know that she now lacked mental capacity. Social services subsequently followed up their call with a fax, again stating that Mrs J now lacked mental capacity.

A few months later, Mrs J died. Her daughter, Mrs L, was her executor. When looking through her late mother's bank statements, Mrs L noticed that her brother had continued to draw on their mother's account after social services had contacted the bank.

Mrs L was aware that social services had told the bank about her late mother's condition, so she asked the bank why it had failed to act on this information. She said it was her understanding that an ordinary power of attorney stops automatically if the donor loses mental capacity.

The bank told Mrs L that it was legally entitled to allow Mr J to act under the power of attorney until either it received formal notification of Mrs J's lack of mental capacity or Mrs J cancelled the power of attorney. The bank said it had never received any formal notification of Mrs J's condition. When questioned about this, it admitted receiving the phone call from social services but said it had never received a fax confirming the call.

Unhappy with this response, Mrs L brought a complaint to us in her capacity as the late Mrs J's executor.

complaint upheld
We checked whether Mr J was one of the beneficiaries of his mother's estate. He wasn't, so we were satisfied there would not be an unfair result of any benefit to him if we upheld the complaint.

That was an important point because, unlike a court, we have no power to direct how the money from any award made to an estate should be distributed.

From the evidence provided by Mrs L and social services, we concluded that the bank had received the fax about Mrs J's lack of mental capacity. But regardless of whether or not it had done so, we thought the bank should have acted promptly to freeze Mrs J's account as soon as it received the phone call about her loss of mental capacity.

Mrs J had given her son an ordinary power of attorney. This no longer had any legal effect once she lost mental capacity. The bank should not, therefore, have allowed Mr J to continue using the account. If it had felt it needed formal written notification, and did not realise it had received the fax, then it should have followed matters up with social services.

It was clear from the evidence we saw that Mrs L had made separate financial arrangements to provide for her mother during her last months (when she was hospitalised and unable to do anything for herself). It was also clear that the withdrawals, totalling just over £8,000, that Mr J had made after social services contacted the bank, had not been for his mother's benefit.

Mrs L had incurred legal costs on behalf of the estate in connection with these withdrawals. We said the bank should pay these costs, as they would not have been necessary if the bank had acted correctly when notified of Mrs J's loss of mental capacity.

We said that, in addition, the bank should pay the late Mrs J's estate the total sum that her son had withdrawn after the power of attorney ceased to have effect. It should also pay interest on that sum.

consumer with power of attorney objects to bank's internal procedures for noting the power in its records

Shortly after Mr A was given lasting power of attorney for his aunt, he visited her bank branch. His intention was to inform the bank that he had the power of attorney and to make arrangements to use his aunt's account, should it become necessary.

The bank asked Mr A to sign its own registration form. It said it would then take a photocopy of the power of attorney and keep this on file.

Mr A refused to sign the form. He said he could not see why it was necessary, as he had showed the bank all the relevant paperwork. He also pointed out that the form appeared to be impractical, in the circumstances, as it asked for the accountholder's signature.

The bank agreed that the wording of the form was a little confusing. But it said there was no need for Mr A's aunt to sign the form, as he had power of attorney to sign on her behalf. Mr A still refused to do this. He also refused to allow the bank to make a photocopy of the power of attorney.

The bank told him that its procedures required it to retain a copy. It said that if he objected to the bank making its own copy, he would need to provide a certified copy which he could obtain from his solicitor.

Mr A left the bank at that point. He subsequently wrote to the bank's head office to complain about what he considered to be "excessively bureaucratic and unnecessary procedures". He asked the bank to compensate his aunt for the inconvenience she had been caused.

complaint not upheld
There was no dispute between Mr A and the bank about what had happened in the branch. The only point at issue was whether the bank had acted reasonably in asking him to sign the form - and in requiring a copy of the power of attorney, for its records.

Mr A's aunt had registered the lasting power of attorney with the Office of the Public Guardian so he was entitled to act under it.

In strict legal terms, there was no need for him to sign the bank's form. However, we could not see that the bank had acted unreasonably or put him to any real inconvenience in asking him to do this. The bank had already filled in the form with the information it needed, so all Mr A had to do was to sign it. He was not asked to bring his aunt into the branch, or to get her signature on the form.

We also thought it reasonable (and a reflection of normal practice) for the bank to require a copy of the power of attorney for its records.

We did not agree with Mr A that the bank should pay his aunt compensation. She had not been inconvenienced by the fact that the bank had not so far made an official note of the power of attorney. She was fully capable of managing her financial affairs herself and had arranged the power of attorney as a precaution, in case she eventually became too frail to cope on her own.

We encouraged Mr A to cooperate with the bank to ensure that his power of attorney could be properly noted on its records. We did not uphold his complaint.

consumer and bank both misunderstand need for formal registration of enduring power of attorney

When Mrs J's uncle, Mr B, gave her an enduring power of attorney she visited his bank to make arrangements to operate his account, should it become necessary.

Mr B was fully capable of dealing with his finances himself at that stage and it was three years later when Mrs J first needed to use the power of attorney. She then visited the bank to explain that Mr B had become increasingly frail and now lacked mental capacity.

After telling Mrs J that this information would be put on file, the bank allowed her to withdraw £200 from the account. It arranged with her that in future it would send the monthly statements for her uncle's account to her, at her home address.

Several months later Mrs J again visited the branch to make a further withdrawal. By then it had become clear to her that she would need to start making more frequent withdrawals in order to meet her uncle's care needs.

She was very surprised when the bank refused to give her access to Mr B's account, as it said it had no record of her power of attorney. Mrs J protested that she had registered the power of attorney at that same branch, three years earlier. And she pointed out that she had recently withdrawn some money from the account without any difficulty.

However, the bank told her she would need to obtain an order from the Office of the Public Guardian before it could allow her access to Mr B's account. Mrs J argued, without success, that this should not be necessary - and she eventually referred a complaint to us, on her uncle's behalf.

complaint upheld in part
Mrs J had not realised that before she could use the power of attorney, she had to register it with the Office of the Public Guardian. But she had not been alone in misunderstanding the situation. The bank employee who had registered the power of attorney in the bank's records, allowed her to withdraw money from Mr B's account, and sent the statements to her home address, had also been unaware of the legal requirements. So we were not surprised that Mrs J had failed to realise that all was not in order.

Once the problem came to light, the situation was made worse by the fact that the bank had lost the details of the power of attorney. It had therefore - mistakenly - suggested that it had never been told about it at all.

It was always going to be necessary for Mrs J to register the power of attorney with the Office of the Public Guardian before she could use it to act for her uncle. And we accepted that the bank had no general duty to advise her in the matter. However, she would have registered it far earlier if the bank had not mistakenly allowed her access to Mr B's account before she had done this.

We also thought that the bank should have been more helpful when it eventually realised that the power of attorney had not yet been properly registered, particularly in view of its earlier mishandling of the matter.

We said the bank should credit Mr B's account with £550, to reflect its contribution to the difficulties.

bank seeks donor's agreement before agreeing to attorney's request to transfer funds

Mrs D gave her son power of attorney so that he could deal with her financial affairs. She was elderly, with mobility problems, and "disliked dealing with paperwork".

Several years after Mr D had first started using his power of attorney, he went to the local bank branch and asked to transfer £15,000 from his mother's savings account to his own current account.

The cashier told him that as the transfer was for such a large sum of money, her manager would first have to approve it.

The manager took Mr D to a side office and asked him the reason for the transfer. Mr D later said he had felt "embarrassed and insulted" to be questioned in this way. He reminded the manager that he had a valid power of attorney - and he said he was not obliged to explain why he was transferring the money.

The manager then asked Mr D to wait for a few minutes while she "checked something" in the back office. He later discovered that the manager had rung his mother.

The manager had tried unsuccessfully to get through to Mrs D on her home number and eventually spoke to her on her mobile phone. After a short discussion over the phone, the manager agreed to carry out the transfer.

Mr D subsequently complained about the bank's actions, on his own behalf and on behalf of his mother. He said he had been "humiliated" by the manager's insistence on speaking to his mother before allowing the transfer.

And Mrs D (who had been staying with friends at the time) said she had been annoyed to have her holiday interrupted by a call from the bank.

She said this had been "particularly upsetting" because her main reason for setting up the power of attorney had been to avoid dealing with financial matters.

The bank defended its actions. It said its approach to the situation had been reasonable, given the nature of the transaction. Mr D then brought the complaint to us.

complaint not upheld
There was no question that Mr D was legally entitled, under the lasting power of attorney, to operate his mother's account. But given the circumstances, we thought it reasonable for the bank to satisfy itself that all was in order before going ahead with the transaction.

The transfer was very different from the type of transaction that Mr D normally carried out for his mother. It involved a large amount of money - and this sum was being moved into Mr D's personal current account.

We were satisfied, from the bank's recording of the call and from the notes the manager had made subsequently, that it had been handled sensitively.

Mrs D had explained that she was on holiday, but she had not appeared at all unwilling to talk to the bank manager. The conversation had been fairly brief but it was long enough for the manager to establish that Mrs D was aware of the transfer and happy for it to go ahead. The manager also noted that Mrs D did not appear to be upset, confused or under any pressure.

We concluded that, in the circumstances, the steps the bank had taken were reasonable and proportionate and had been taken in Mrs D's best interests. We did not uphold the complaint.

image of ombudsman news

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.