November – $700,000 deposited at 2%
Rex is an experienced property developer. In November 2013 Rex transferred the proceeds of a successful development, $700,000, from an on-call bank account earning 4.1% interest to a credit union, believing he would be earning 4.5% interest. In fact, the $700,000 was deposited into a transactional account earning only 2%.
June – error identified
Rex said he did not receive any statements from the credit union for the first six months. In June 2014 Rex received a statement showing that he was only receiving 2% interest and Rex went into the credit union. The credit union staff member apologised for the mistake, explaining that in order to have an on-call account earning higher interest, Rex also needed a transactional account. Rex instructed the credit union to open an on-call account, transfer most of the money into that account, leaving only $10 in the transactional account.
September – mistake still not corrected
In September 2014 Rex checked his statements again and noticed that his instructions had not been followed. The money remained in the transactional account. Rex went back to the credit union, had the same conversation with a different staff member, and believed his instructions had been followed.
Two and a half years later, the problem was still not fixed
Rex was busy with his business, and did not check his bank statements again for two3 and a half years. When Rex checked his statements, he discovered he was still only receiving 2% on his investment and complained to the credit union. Rex’s accountant calculated he had lost $20,000 in interest over the past three and a half years. Rex complained to the credit union.
Credit union has no record of instructions
The credit union checked its records, but could not find any note of Rex’s initial instruction to open the on-call account or Rex’s visits in the following June or September. The credit union did not accept it was liable for any loss, and referred Rex to FSCL. The credit union also noted it did not offer an on-call interest rate of 4.5% when Rex opened his account, the investment statement that would have been given to Rex referred to a 4% interest rate for the on-call account.
Rex’s view
Rex considered the credit union was liable for his loss because:
- it had failed to follow his original instructions
- he had drawn the error to the credit union’s attention twice, but the mistake had not been fixed
- it had had the benefit of his funds at a lower interest rate than it would otherwise have had to pay
- the advertised interest rate was 4.5%, otherwise he would not have moved his money which was earning 4.1% with a bank.
Review
Early dispute resolution explored
During the early stages of the complaint, we spoke to both the credit union and Rex about how the complaint could be resolved. The credit union did not accept that it had done anything wrong, but in the interests of resolving the complaint, offered Rex $4,500. Rex declined the offer, saying his accountant had calculated a $20,000 loss and while he might consider accepting slightly less, $4,500 was unacceptable.
The credit union was not prepared to increase its offer and our process continued.
No diary notes – but Rex’s recollection plausible
Although there were no diary notes recording Rex’s initial instructions to the credit union, or his visits in June and September 2014, we were prepared to give Rex the benefit of the doubt to some extent. Customers do not usually keep diary notes of their meetings with a credit union. Also, we accepted it was unlikely that Rex would move money from an account earning 4.1% to an account earning 2% interest. It was possible that the credit union had failed to follow Rex’s original instructions.
When should Rex have noticed the mistake?
Although the credit union should not have made the mistake, Rex also had an obligation to check his statements and correct the error. We then asked: at what point would it have been reasonable for Rex to notice the error?
Given the large amount of money involved, we considered it would have been reasonable for Rex to have checked his statements and noticed the error before March 2017. Although Rex said he did not receive statements between November 2013 and June 2014, we considered this unlikely given statements are automatically generated.
Although there were no diary notes of Rex’s branch visit in June 2014 we were prepared to accept Rex’s recollection. Rex described the branch visit, including the advice that he could not open the higher interest account without having a lower interest transactional account. Rex’s recollection in this respect was correct, and we accepted he received this information at the June branch visit.
However, once Rex was aware of the error, we considered it would have been reasonable for him to keep a close eye on his statements. We were not persuaded that he visited the branch again in September 2014 and thought he should certainly have noticed the error before a further two and a half years had passed.
Interest rate confusion
With respect to the applicable interest rate, we accepted the credit union’s written evidence on the investment statement that the on-call account rate was 4% rather than Rex’s recollection that the rate was 4.5%.
Could the credit union have given Rex better advice?
When considering a resolution, we were also mindful of the credit union’s level of service to Rex. We would have expected the credit union to notice that Rex had a very large amount of money in a lower interest-bearing account for some time and to have contacted him to ask whether a higher interest account would better suit his needs.
Outcome
We proposed, and Rex and the credit union accepted, that it would be reasonable for the credit union to compensate Rex for the lost interest between November 2013 and June 2014, being $7,700.
We considered the credit union had no obligation for Rex’s loss beyond June 2014 because he was aware of the problem and it would have been reasonable for him to keep a close watch on his statements and make sure the error was corrected. Rex could have accessed the credit union’s internal complaints process or moved his money to another deposit-taking institution if the credit union was not able to offer him the product he required.
Our insight
Mistakes happen. Both parties to the relationship have an obligation to check instructions have been followed, and errors corrected. Consumers should check their deposit and loan accounts statements on a regular basis and inform their lender or deposit-taker of any mistakes as soon as possible.
