A bank error in my favour – and I’m not the only one

Comment: The letter from our bank sat ignored on a corner of the kitchen bench for a couple of weeks, before we opened it. There’s little worth reading that comes through the mailbox these days.But as it turns out, this particular letter may as well have been drawn from the community chest in Monopoly. Bank error in your favour; collect $162. The letter from Westpac, where we have our mortgage, was somewhat cryptic. “We’ve identified that in the past we may not have always provided you with all the details of your temporary credit limit increases to your loan facility,” the bank confessed. 
So Westpac would pay us $162. Not as compensation for the error, mind you. Nor as reparation, nor remediation. “This is a voluntary payment we’re choosing to make and does not waive any rights we may have.”
The thing is, language like that makes an experienced board gamer suspicious. There are few free lunches – or entirely voluntary payments – in the game of Monopoly or in the game of life.
So I asked the Commerce Commission. 
Vanessa Horne, the general manager of competition, fair trading and credit, tells me Westpac self-reported an issue relating to the provision of disclosure for agreed changes to credit contracts to the Commerce Commission. 
“The commission is currently investigating if this conduct raises issues under the Credit Contracts and Consumer Finance Act,” she says.I asked Westpac.It turns out that they’d briefly increased our borrowing limit by $7000 (way back in August 2015) without formally recording it in a loan variation agreement. And we weren’t the only ones.
“No customers were incorrectly charged fees or interest,” Westpac NZ general counsel Stephen O’Brien tells me. “This is a voluntary $162 payment we’re making to all customers in the same situation as you – about 2100 customers in total.”That’s $340,200 plus a few postage stamps. It probably won’t break the bank. I ask, why $162? “We arrived at this sum after carefully considering what might be appropriate based on what’s fair and reasonable,” O’Brien says, without really shedding a single speck of light on those considerations.Westpac isn’t the only bank or insurer combing through past transactions to identify errors and self-report them, before they’re caught out by the Commerce Commission or the Financial Markets Authority. Why had they self-reported this seemingly innocuous breach of their own internal processes to the Commerce Commission? “As you’ll probably appreciate there are confidentiality considerations that stop us from disclosing information about interactions we may have had with regulators.”Fortunately the regulators are a little more forthcoming. Michael Hewes, a director at the Financial Markets Authority, says banks have paid $120m to compensate customers for problems, since a conduct and culture review in 2019 found they didn’t have the systems and processes in place to ensure consumers were consistently treated fairly. Where necessary, by court order. Hewes says banks and insurers have become more proactive at recognising when harm is occurring, and that’s resulted in more self-reporting to the authority. Common errors concern multi-policy and member discounts, fee waivers, claims discounts, and overcharging.Here’s the thing though: despite Westpac’s insistence it is making a voluntary payment and that no customer was incorrectly charged, the language used by the authority is of “harm”, “compensation” and “remediation”.Which suggests that banks’ lawyers, in their anxiety to avoid admitting liability, are still being disingenuous about the actual impact of their errors. And for all the polite words about self-awareness and self-reporting, the courts and regulators are still forced to crack down constantly on wayward institutions.Last week, AA Insurance was fined nearly $6.2m for failing to apply multi-policy and membership discounts. At the same time, the Financial Markets Authority filed court proceedings against ASB Bank for failings in both its insurance multi-policy discount and its fee exemptions for bank accounts – in total, 25,600 customers were allegedly overcharged $4m.The authority’s regulation director also wrote to banks and insurance companies. From March 31 next year, she reminded them, the authority will increase its supervision of banks and insurers under a new Conduct of Financial Institutions regulatory regime. It’s intended to ensure the institutions comply with the fair conduct principle when providing relevant services to consumers.And the authority wields a bigger stick than ever: “In the event we identify misconduct, we will respond in a manner that is proportionate to the harm or risk of harm,” she wrote.For those of us in other customer-facing businesses, the scrutiny may be more intense from our customers than our regulators. But the Commerce Commission guidance for consumer remediation, though intended for regulated industries, provides nine useful principles for any business that may occasionally stuff up – and be willing to acknowledge the harm caused.There are two words that recur several times in the nine principles: the processes and communications should be “clear” and “transparent”.
That’s something even one of New Zealand’s biggest banks could learn a bit about.