Money: When good cards go bad

By MARK FRYER

Consider, if you will, the humble plastic card. Last year, we pushed them into Eftpos terminals 450 million times, automatic teller machines 170 million times, and made almost 150 million credit card transactions.

Most of the time the plastic worked perfectly. The hole in the wall spat out the cash, the shopping was paid for, the funds moved from one account to another.

But what happens when your card doesn't work? When the bank puts your money in the wrong account? Or someone steals your card and the bank blames you?

While your first port of call is the bank, if that doesn't settle things you can still ask the Banking Ombudsman to put things right.

The Ombudsman's annual report, just out, includes examples of cases handled in the past year - everything from sad tales of spouses withdrawing money from their partners' accounts to the dangers of assuming that bank cheques are as good as cash.

Amid the tales of woe, there are a few useful lessons for anyone with a plastic card.

* Lesson 1: Take "reasonable" care to keep your personal identification number (PIN) secret, but there are limits.


After Miss Z discovered her card missing in a bar one night, her bank refused to pay back the $800 the thief withdrew.

Miss Z must have disclosed her PIN, the bank argued. As evidence, it pointed out that the thief had successfully withdrawn money on the first attempt.

Verdict: There was no evidence Miss Z was to blame, Ombudsman Liz Brown decided. She had not written her PIN anywhere, had discovered the wallet missing shortly after using her card at the bar, and had reported the loss soon after.

In the crowded bar, reasonable care was not enough to stop someone from seeing her enter her PIN.

While it is hard for a bank to prove that customers have breached the terms of use for their card, says the Ombudsman, it is also difficult for customers to prove they haven't. Generally, though, the onus is on the bank to provide evidence that there has been a breach.

Outcome: Miss Z got her money back, less the standard $50 customer liability.

Lesson 2: It may look like junk mail, but it pays to read that stuff the bank fires through your mailbox.


When Mrs H's wallet vanished, and $4000 was extracted from her account, it seemed that the thief had worked out her PIN - which was based on her birthday - by looking at her driver's licence.

"Too bad," said the bank, or words to that effect. Mrs H had been warned twice about the dangers of choosing a PIN based on her birthday.

Not so, retorted Mrs H. On top of that, she said, the bank did not tell her when the daily limit on Eftpos transactions was increased significantly.

Verdict: A split decision.

Yes, said the Ombudsman, the bank had sent out an updated copy of its terms and conditions, including a warning against using a birthday as a PIN. Banks have to rely on customers actually reading the material, said the decision.

But when it came to the increased withdrawal limit - up from $1500 to $5000 a day - it wasn't enough just to send customers a new terms and conditions booklet and hope they noticed the change.

Customers should read the terms and conditions, said Mrs Brown, but when there was a big change banks had a duty to issue a specific warning.

Outcome: The Ombudsman recommended that Mrs H and her bank split the loss.

Lesson 3: If you are heading overseas, don't rely on one way of paying the bills.


Mr and Mrs T planned a trip to Bali, via Sydney, Melbourne, Adelaide and Perth. The bank provided a debit card, telling them it would "do everything you want overseas," and they took some cash and travellers' cheques for emergencies.

When the card failed to work in Sydney, the couple assumed the problem was with the PIN, and asked for a new number.

Trouble was, the real problem was with the card's magnetic strip, and it took 22 days to organise a replacement.

The card problems meant Mr and Mrs T missed Melbourne and Adelaide, and many places in Bali would not take their new card.

Verdict: The bank's terms said it was responsible for losses caused by a card failing, said the Ombudsman. Bank staff should also advise travellers to take alternative forms of payment.

Outcome: The bank refunded all Mr and Mrs T's direct losses, and some other costs, and paid $1500 for the inconvenience.

Lesson 4: If you don't ask for a PIN, the bank can't force one on you.


Mr and Mrs H applied for Visa cards, which duly arrived with a note that their PINs would soon be in the mail.

The new cards went into a safe deposit box, and the PINs were stored separately.

Sixteen months later came the unhappy news that the Visa account was $5570 in the red, plus interest.

It emerged that the couple's son had stolen one of the cards and found the PIN, covering his trail by intercepting mail from the bank.

Mr H paid up, but complained that his bank was negligent in posting out PINs which he had not asked for.

Verdict: The Ombudsman agreed. The bank had breached the Code of Banking Practice, which says cards, PINs or passwords will be issued only on instructions from customers.

As well, Mr H did not appear to have been told to destroy the letter with the PIN if he didn't want to use a PIN with the card.

Outcome: The Ombudsman recommended that Mr H get his money back, minus the standard $50 liability.

Lesson 5: When things go really wrong, it's worth fighting for compensation.


Several weeks into a three-month round-the-world trip, Mr C discovered that his Visa card made no impression on London's ATM machines.

Problems persisted in Rome, as Mr C's father back home tried to help by shifting money from his son's savings account to his cheque account - which is where the ATM withdrawals were being made from - and into his Visa account.

Fearing that he had been confused by exchange rates, and spent more than he thought, Mr C dropped the trip and headed home, only to find another $2500 waiting for him - not in his Visa account but in another, supposedly closed, account linked to a card which had proved faulty.

Verdict: The old account had been left open accidentally, the bank had not told him overseas transactions would come from his cheque account, or that he could not use his savings account from abroad.

Outcome: The bank offered to pay the cost of the flight home, and for the cancelled portion of Mr C's European trip. Not good enough, said Mr C, who wanted compensation for the loss of his American holiday as well.

In the end the bank coughed up for the full cost of a replacement trip, and $1500 for the inconvenience.


The Banking Ombudsman scheme is open to anyone dissatisfied with any service from a participating bank (which includes all the big retail banks).

The Ombudsman can help to negotiate a deal with a bank, and can award compensation of up to $100,000 for direct losses (more if the bank agrees to the Ombudsman's hearing a higher-value case) and up to $2000 for inconvenience.

Before going to the Ombudsman, you must have exhausted the bank's own complaints procedure.

Don't bother calling if your only complaint is that the fees are too high. Ombudsman Liz Brown says she can't do anything about the level of bank charges (although she might be able to help if fees have been wrongly charged or you haven't been properly informed).

Her address is:

PO Box 10-573,
The Terrace, Wellington.
Phone: 0800-805-950.
E-mail: help@bankombudsman.org.nz

* To contact personal finance editor Mark Fryer write to: Weekend Business, PO Box 32, Auckland. Ph (09) 373-6400 ext 8833 Fax: (09) 373-6423 e-mail: mark_fryer@herald.co.nz