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Introduction to the Financial Ombudsman ServiceBanking & Finance Legal Counsel 29 July 2009 Powerpoint

Posted by on in Reserve Bank of Australia
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The Dispute Resolution Process

 

Terms of Reference:

The Law – 5 legal counsel, legally trained case managers and case officers

Applicable industry codes or guidelines – Code of Banking Practice, EFT Code, Centrelink Code

Good industry practice – seconded banking adviser and financial services industry adviser

Fairness

Types of Disputes

Delay in settlement

Decision to lend – lending when there was no capacity to repay the loan

Conduct of bank if it sells property as mortgagee in possession

Errors in charging fees (however, we cannot look at a bank’s policy decision to charge fees)

Types of Disputes

                           Breaches of bank’s duty of confidentiality or breaches of privacy

Funds transfer problems – telegraphic transfers, internet banking

Debt collection – disputes about the amount demanded; debt collection practices if conduct is by member or agent of member; credit listings with Veda Advantage Ltd (formerly Baycorp Advantage)

Requests for a variation in the contract due to financial difficulty

 

Maladministration in Lending

What is Maladministration

  Terms of Reference Clause 5.1 (a)

cannot consider disputes solely about commercial judgment

can consider disputes about maladministration in lending which involve:

                               an act or omission contrary to or not in accordance with a duty owed at law

                               or pursuant to the terms (express or implied) of the contrac

 

Maladministration

The relevant principles are:

Common law duty to act as a diligent and prudent banker

Clause 25.1 of the Code of Banking Practice:

"Before we offer you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it."

Section 70(2)(l) of the UCCC – In determining if a term of a credit contract is unjust, the court may have regard to a number of factors including whether the credit provider "knew, or could have ascertained by reasonable enquiry of the debtor at the time, that the debtor could not pay…or not without substantial hardship"

 

Maladministration

in Secured Lending

We examine the information obtained from the borrower and the assessment of that information. Was there proper assessment of the capacity to repay the loan having regard to the standard of a diligent and prudent lender?

The application stage

- What information is sought from the borrower?

 

- What information is verified?

                                     The loan assessment stage

- Is all relevant information taken into account?

Maladministration

in Secured lending

 

If maladministration is established in relation to secured lending where a property was acquired, then the disputants would not have entered into the loan.

In order to put them back into the position they would have been in, they would have had no loan, but no property.

Maladministration

in Secured lending

 

Therefore their claim includes:

1. The disputants’ contribution to the purchase;

2. The purchase costs which were not included in the loan;

3. Payments made on the loan;

4. Other holding costs;

5. Sale costs.

We would add back in any benefit obtained while being an owner of the properties, for example:

not having to pay rent or interest on alternative accommodation;

rent received from leasing the property and any tax deduction received for an investment property.

Maladministration

in Secured Lending

 

The net amount is the disputants’ claim.

The sale proceeds are used to repay the loan and these costs.

If the sale proceeds are insufficient to repay the loan and these costs, then the bank must waive the balance of the loan (if any) and then pay to the disputants an amount sufficient to cover the costs incurred.

If the sale proceeds are sufficient to repay the loan and the above costs, then notwithstanding any maladministration, the breach of the bank-customer contract has not caused the disputants any loss.

Case Study

 

 

Young couple borrowed $104,000 to purchase first home. Within a few months they were in arrears. Bank conceded lending was outside its guidelines.

Bank to sell property and bear cost of shortfall, if any;

Assessment of disputants’ financial loss:

Funds put towards purchase and interest lost on funds put towards purchase; ($51,289)

Establishment costs, legal costs, rates, mortgage discharge fee; ($1,697)

Payments made; ($16,635)

Take into account rental payments that would have been paid in the same period ($24,180)

Bank incurred shortfall on sale and paid disputants $45,441

 

 

 

 

 

 

 

 

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Comments

  • doyla66
    doyla66 Monday, 27 August 2012

    Thanks, JJ. :D

  • doyla66
    doyla66 Monday, 27 August 2012

    so what does this all mean? the banks could possibly get away with maladministration if the sale proceeds exceed the loan costs....does not sound like a good result to me.

    Why are we forced to sell the property in the first place? Banks processed a loan without taking our financial well being into consideration & gave us money knowing full well we possibly couldnt pay it back or would struggle to do so - they have breached their banking code of conduct so it shouldnt matter what purpose the funds were used for - investment or own home - WE Should not be put in a position where we are forced to sell the property & if the property has gained in value & the disbursement costs does not exceed the loan costs then they pretty much get away with not owing us anything. EQUITY GAIN SHOULD NOT BE TAKEN INTO CONSIDERATION WHEN CALCULATING A FINAL CLAIM, usually all properties grow in value over time - if a loan was not meant to be approved & the LAF was tampered with after signatures were obtained from the borrower then the Bank must be responsible for this & either extinguish the loan that shouldnt have been approved in the first place or reduced it to a comfortable level for the borrowwer to be able to sustain it without losing the property. THIS IS THE ONLY RESONABLE SOLUTION THAT TO ME MAKES SENSE, any other way could mean the bank will get away with their maladministration activities & continue to claim more victims.

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