Banks offer remarkably useful services. There is hardly an adult alive who doesn't have at least one bank account. For most people the banking relationship goes smoothly. When it does go wrong, it leaves some people in long-term financial strife.
People complain to the Banking Ombudsman Scheme about all sorts of things at a rate of about 10 a day. The more interesting ones can be read on the ombudsman's website. As I read through a new batch this week, I lost count of how many times I uttered "ouch".
Some of the complaints relate to issues banks should have dealt with in their own internal complaints process, others are complex, and a number are frivolous.
Last year a third of complaints were resolved wholly or partly in favour of the bank customer, 27 per cent were not upheld and in 40 per cent of cases the complaints were withdrawn or abandoned after an explanation.
The biggest source of complaints to the ombudsman so far this year is mortgages and, in particular, mortgagee sales disputes.
Mortgage customers who get into financial difficulty are often surprised that they can't hand the keys back to the bank and walk away. Another unexpected outcome arises if the property is sold for less than the mortgage.
People often don't understand that they owe the shortfall to the bank and must keep making payments.
Other common mortgagee sale-related complaints to the ombudsman include:
* "The bank relied on an inaccurate valuation and sold the house for less than it was worth."
* "The real estate agent was incompetent."
* "The bank should have waited until summer to sell my house as it would have got a better price."
Some bank customers can never be satisfied. After Mr A's two properties were sold he was left owing the bank some residual debt including credit card debt. The bank offered to consolidate the consumer debt at a secured lending rate despite the fact Mr A had no security.
"While Mr A claimed the bank was trying to charge him interest at the credit card rate, there was nothing to support this and we came to the conclusion the bank's offer was a fair one," the case officer remarked.
The ombudsman receives some tricky complaints. In one case Mr and Mrs M used their property as security to enable a brother and sister-in-law to buy a home. The latter couple were subsequently convicted of drugs offences and the courts obtained an order over Mr and Mrs M's property under the Proceeds of Crime Act.
Their complaint to the ombudsman was that their bank spent too much on legal fees charged to them to defend the case. The ombudsman disagreed because it was a complex issue that needed specialist legal opinions and they were left to pay the bill.
Going guarantor can be fraught with dangers as this case showed. One guarantor case involved a group of friends who formed a company and each signed unlimited deeds of guarantee with a bank for a business loan. When two of the friends got into financial trouble over a rental property unrelated to the business loan, the bank warned the other friends that they would be liable for that debt. Ouch.
It's not uncommon for banks to take unlimited guarantees when a limited guarantee would suffice. The trouble is that borrowers often don't take legal advice and fail to realise they can limit their risk. Even then, people sometimes don't understand the limitations.
When a couple split and their home was sold, the bank used some of the proceeds to pay off their credit card and personal loan debt. The husband's parents, whose home was used as security for the couple to get the mortgage, became liable for $55,000, when the original shortfall on the home sale had been $27,000.
Banking ombudsman Deborah Battell concluded: "There was nothing in the guarantee that would require the bank to use funds realised from the sale of the house or any other source to pay off the guaranteed housing loan before it paid other debts".
The parents in that case were concerned the bank hadn't told them their son, and in particular their daughter-in-law, had taken out credit card and other debt that they were indirectly responsible for. The law states, however, that a bank may not disclose to an intending guarantor any information relating to the financial position of a loan applicant.
That case led Battell to comment: "I am concerned that parents who guarantee loans for their children often do not appreciate that they are accepting legal liability for other debts incurred in their name, irrespective of whether those debts were incurred before or after they provided this guarantee."
Another class of complaints causing the ombudsman concern is irresponsible lending and refusal to lend. Under the Code of Banking Practice, banks must only provide credit or increase a customer's credit limit when the information they have available leads them to believe the customer will be able to meet the terms of the lending.
Mr and Mrs D complained to the ombudsman that their bank had lent them 80 per cent of the cost of a section, but then refused to lend more to build a house on that section. The couple said the bank should not have loaned 80 per cent of the purchase price of the section if it was not prepared to lend enough to allow a house to be built on it.
The complaint was not upheld because the couple was not in a financial position to repay an even greater mortgage.
Irresponsible lending doesn't just relate to mortgages. Mrs P complained about a bank's decision to allow her 18-year-old son to borrow $8500. She felt the bank made no effort to check whether he had sufficient money management skills to act responsibly with the money.
Unfortunately for her the bank is not required to consult parents and there was no evidence that its lending decision was deficient.
Another bank increased the limit on a man's credit card from $7000 to $9500 after being told he had mental health and gambling problems. Following a complaint to the ombudsman by his mother, the bank refunded all the interest and agreed not to charge more interest.
Children's bank accounts result in all sorts of complaints - especially when those youngsters withdraw large sums of money without the parents' knowledge.
For example, Ms C's teenage daughter was issued with a debit card and withdrew money. The bank accepted that it should not have issued the card because the account required both mother and daughter to sign withdrawals. The bank reimbursed almost $500 to the teenager.
Another bank let a 14-year-old withdraw $3000 from an account he did not have signing authority for. The bank refunded $1500.
Cases heard by the ombudsman can lead to changes in bank policy. One bank now requires mortgage borrowers to sign a declaration showing that they were offered an insurance needs analysis.
This happened thanks to a complaint by a newly widowed pregnant woman who was shocked to find that her late husband had not taken out insurance to cover their $480,000 home loan.
Banks do, of course, make errors and there was a big jump last year in the complaints about negligence, maladministration or errors relating to current accounts.
Mr C took employees, colleagues, and friends out for a Christmas celebration to find that the bank had accidentally put a hold on his credit card. He had to ask his guests to pay.
The bank offered him $100 compensation for the embarrassment, but this was increased to $2000 after the case was taken to the ombudsman.
The Banking Ombudsman Scheme has published a number of Quick Guides on its website over the past 12 months, explaining how to avoid banking disputes. They can be found at: Bankomb.org.nz/Publications/Quick-guides
"We take great pains to explain the 'rules of the game' to customers if we cannot find in their favour," says Battell. "That way they can avoid making the same mistakes in the future, and we can use their experience to help prevent others having the same experience."