Finance Law

PRACTICE QUESTIONS:

Q1. Ben is a showy and class conscious person who loves to impress people with his extravagant spending. He has difficulties in paying his credit card bills. Ben is the holder of the main card and his wife, Maisie, has a subsidiary card. Maisie also loves to spend. Ben and Maisie regularly fight over bill payments and now they part company. Ben wants to cancel Maisie’s card. Due to bad economic times, Ben is now made redundant. He has several accounts with the bank, some in debit and others in credit. Earlier in the year, he agreed to be a guarantor for his beloved uncle. His uncle is defaulting on his loan and the bank is calling on the guarantee. Ben is very upset and confused and his debt is rising. Advise Ben with reference to the Code of Banking Practice.

The below discusses some avenues for Ben to explore to try to get out or mitigate his debt, as well as the defences the bank will raise in the Code of Banking Practice. There are a few issues that Ben needs advice using the Code of Banking  Practice, namely cancelling a subsidiary card, his rights during financial hardship and his duties as a guarantor and finally how Ben can resolve his problems. All of these issues are discussed in The Code of Banking Practice 2013.

The Code itself is not legally binding. Instead, the code becomes legally binding when an FSP voluntarily adopts the code. Once a subscriber, the FSP is obligated to write a statement under cl. 12.3 in any T&C’s between itself and the customer, that the FSP is abiding by the Code. Through such a statement effectively binds the FSP legally to the code through contract law.  In this case we will assume Ben’s Bank is a subscriber to the code.

Firstly under cl. 27 the bank agrees to exercise care in accessing credit authorisation to customers. If they fail to comply with this Ben could argue that he should have never been given the credit card in the first place. However this is likely to be rebutted by the banks records and internal processes and checks which should comply to cl.27 especially after the crackdown on issuing credit cards post GFC. .

Second issue of the subsidiary card that Maisie holds. Clause 30.3 of the Code states that if you are a primary cardholder you will not be liable for the continuing use of a subsidiary card from the latter of;

a). the date you request the FSP to cancel the subsidiary card and
b). when you have taken all reasonable steps to have the subsidiary card returned to us.

Therefore, the obligation is on Ben to notify the bank and try to get the card back from Maisie either through a visit, phone or email should suffice as reasonable. It is unclear from the facts if Ben has taken these steps however if he has it is likely he will not be liable for any of Maises debt once he had complied with the steps in cl. 30.3.

Third issue, which involves Ben suddenly becoming redundant is dealt with under cl.28 that states in the event of an unforeseen and unexpected event that causes the consumer to have difficulties in meeting their repayments obligations, the code reuires FSP to work with their consumer to help them overcome their financial difficulty. Redundance is included as a circumstance of unforeseen financial difficulty. Therefore, Ben should contact his bank ASAP to negotiate a suitable repayment plan. Furthermore the question states Ben has some accounts in credit and others in debit. Under cl 19.2 the bank agrees to forgo their right under cl 19.1 to combine accounts. If Ben has issues with either the payment plan or if the bank suddenly combines his account after he notifies them of his circumstances he will have grounds for a complaint.

Fourth issue, looks at Ben’s obligation as a guarantor, there is not much information as to under what circumstances or how the guarantor was put into place. However the main rules governing guarantors can be found in Banking Code of Practice and common law.

A Guarantee is a contract between a bank and guarantor (in this case Ben). The obligation of the bank can be found in cl.31.4 – 31.6.

31.4 states that the bank will do the following before they can take a Guarantee from you;

1. Give you a prominent notice that:

1. you should seek independent legal and financial advice on the effect of the Guarantee
2. you can refuse to enter into the Guarantee
3. there are financial risks involved
4. you have a right to limit your liability in accordance with this Code and as allowed by law
5. you can request information about the transaction or facility to be

31.5 states that the FSP will not ask you to sign a Guarantee, or accept it, unless they have;

a). provided you with the information described in cl 31.4 to the extent that information is required by this Code to be given to you and

b). allowed you until the next day to consider that information.

31.6 FSP will;

a). not give the guarantee to the debtor, or to someone acting on behalf of the debtor, to arrange the signing (except if they are a legal practitioner or financial adviser) and

b). ensure that you sign the guarantee in the absence of the debtor where we attend the signing of the guarantee

If the bank has failed to comply with any of these duties Ben will have grounds for a complaint and may be able to get out of the contract of guarantee. Under common law there are vitiating factors which give relief to guarantors from than guarantee contract under certain conditions, due to the absence of consent. In this case the vitiating factors that may suit include, undue influence, misrepresentation and material non-disclosure. It is unlikely from the facts of the case that non-est factum, unconscionable dealings or special wives equity would be considered in this case.

Finally to conclude, the dispute resolution process available to Ben if he considers he has grounds to complain taking in the above discussion is to first make a complaint through the banks internal dispute process under Cl. 37.1 – 37.3, the bank will have an internal dispute process which is free. They are obligated to notify the customer of the outcome. If they are unable to resolve the dispute within 45 days they will inform of the reason why and refer customer on to the external dispute resolution process. The External dispute resolution process under cl. 38.1, states that this service will be free of charge to the customer, consistent with ASIC guidelines. The current EDR is FOS who comply with their TOR set out by ASIC. As part of their TOR, FOS are required to take into account law, codes and other rules therefore the discussion about will be relevant.