Bank scam victims disappointed by Ombudsman’s final decisions Competition in building consents would help the housing market
Natural justice has been ignored in the Banking Ombudsman’s final decisions on two complaints about the BNZ made by the victims of investment scams, one of the victims says.
Whangārei health worker Borja Ares was a victim of the Citibank investment fraud in May last year. He was manipulated by scammers into thinking he was investing $310,000 with Citibank, and BNZ staff helped him transfer the money from a property sale to them.
He believed BNZ was liable for his loss because it should not have allowed the transactions to proceed, and made a complaint to the Banking Ombudsman about it.
Auckland real estate agent Carla O’neil was also a victim of the Citibank scammers, and sent $100,000 to them in February last year, thinking she was investing in a term deposit. She also complained to the Ombudsman about BNZ’S role in the transfers.
In preliminary decisions earlier this year, the Ombudsman, Nicola Sladden, concluded that BNZ should have identified warning signs that Ares and O'neil were being scammed, and said the bank should partially compensate them.
BNZ was ordered to pay each complainant 70% of their loss, as the Ombudsman said they were partly to blame for the losses.
That meant compensation of $217,297 for Ares, and $54,998 for O’neil.
Ares and O’neil, who are part of a network of scam victims formed to support each other, were unhappy with aspects of the preliminary decisions, while BNZ disagreed with the findings but agreed that it would pay.
Now, the Ombudsman has issued her final decisions on the complaints, and she has not changed her original decision.
Submissions from Ares and O’neil, banking expert Janine Starks, Scott Russel Legal and Victim Support had asked for 100% of the losses to be repaid to the two victims.
In the final decisions, the Ombudsman said BNZ breached the principles of good banking practice and was principally liable for the losses, as it failed to issue warnings when there were grounds for it to suspect the two were being defrauded.
But the principles of contributory negligence had to be considered in working out liability for the losses, and she could not conclude that the bank was solely responsible for the loss.
The Ombudsman said she weighed up all factors in Ares and O’neil’s submissions, and considered a fair allocation of liability for their losses was for BNZ to reimburse them with the amounts ordered in the preliminary decisions.
A BNZ spokesperson said that while the bank disagreed with the findings in terms of culpability, in the interests of achieving a final outcome for O’neil and Ares, it accepted the Ombudsman’s position.
“We are very aware of the consequences these scams have had on Ms O’neil and Mr Ares, and we are mindful of the length of time that has passed since their complaints were raised with the Ombudsman."
Ares said he was extremely disappointed by the final decision, and could not understand why the Ombudsman had relied on common law, rather than natural justice.
“The Ombudsman didn't carefully consider each case and the responsibilities – rather, it just considers us negligent.”
There was a bias from the beginning, and that led to the decision to go with the 70/30 split in liability, regardless of the submissions the pair made and the information they presented, he said.
“Most of the final decision is a legal justification for the use of the Contributory Negligence Act, and leaves many of the points I made unanswered.”
The process involved was not accessible, and the decision that had been reached was unfair, he said.
Ares and O’neil have until May 3 to decide whether they will accept the recommended compensation.
As the decision was final, and the Ombudsman would not consider the complaint further, Ares said he would have to accept it.
“But I will be working with the rest of the people in the scam victim network to pursue a class action lawsuit on this issue.”
Both the prior Labour government and the current National-led coalition have wanted to deliver more affordable housing. But getting there is like trying to traverse an overgrown forest path. You can’t get anywhere until you clear the first fallen branch, but clearing it only takes you up to the thorny brambles a little way down the track.
There is broad cross-party agreement that housing supply fails to keep up with demand for housing because councils have not zoned enough land for apartments, townhouses, and new subdivisions. Prices go up instead.
Fixing the problem isn’t simple. But zoning is hardly the only problem.
Wellington City Council has proposed a fairly ambitious district plan for Housing Minister Chris Bishop’s approval. I would have preferred that the plan also make provision for new subdivisions that can cover the cost of the infrastructure needed to service them. Ability for cities to grow at the fringes helps to make land for downtown apartments more affordable.
Nevertheless, Wellington’s proposed district plan is a substantial improvement on the current plan. It enables a lot more housing in places where people want to live.
That clears the first fallen branch. Like the more enabling Auckland Unitary Plan, it will do a lot of good. The Government seems committed to enabling competitive urban land markets more broadly.
But we then run into the next bramble thicket.
Councils do not just zone land for housing. They also issue building consents, inspect buildings as they’re being constructed, and issue final codes of compliance certification when building is complete.
Councils have been local monopolies in signing off on buildings. The country has a single Building Act, but developers warn that council interpretations of that act vary considerably. A building that would be compliant in one area might not be in another, making it harder to use standardised designs and methods to bring down costs.
And council reluctance to sign off on buildings constructed using unfamiliar materials or methods can be understandable. If anything goes wrong with the building years later, council is jointly and severally liable for the damages along with the builders and subcontractors. If those builders have exited, council is left on the hook. Work by Sapere for the Ministry of Business, Innovation and Employment found that in just under half of cases in which the courts awarded damages, council had to cover the entire settlement.
Getting building consenting authorities out from under joint and several liability would help. And especially where the Government is keen on encouraging the use of quality, lower-cost materials certified overseas.
But so, too, could easing the local monopoly on building consent and code of compliance issuance.
The Government has already recognised that building consents and signoffs are part of the problem. Kāinga Ora, the Government’s housing provider, has its own arms-length consenting authority – Consentium. It provides consents for Kāinga
Ora developments along with building inspections and code of compliance certificates.
Consentium then provides a small bit of contestability in the market for building inspection certificates. Kāinga Ora developments can ignore idiosyncratic local interpretations of the Building Act and build to a common national standard. It can also decide to try out new and innovative materials to help bring costs down while improving quality.
But only buildings that will be owned and retained by Kāinga Ora can apply for consenting through Consentium. If a private developer is building two adjacent identical houses, one for Kāinga Ora and the other for private sale, Consentium would only provide consenting services for the Kāinga Ora home.
Consentium is hardly perfect. It was reported earlier this month that it took almost two years for it to decide that an above-ground stormwater storage tank didn’t impose a fire risk. But council consenting systems can be even more broken.
If building consenting authorities had to compete for business, outcomes could be different. If private developers had the option to seek consent from Consentium, both Consentium and councils could have reason to improve performance – so long as the liability issue were sorted out.
Moving towards competitive urban land markets is critically important. Bringing some of the benefits of competition into building consenting would help clear the next bit of bramble along the way.