Why banks pay local body rates arrears, then charge customer

4 November 2014

New quick guide on why banks pay local body rates arrears, then charge customer

Why banks can take money from customer bank accounts to pay their council rates arrears is explained in a new Banking Ombudsman Scheme quick guide on payment of overdue rates.

“We receive complaints every year from property owners with a mortgage complaining their bank paid off their rates arrears to the local council and then took the amount from their account,” said Banking Ombudsman Deborah Battell.

Legislation permits local authorities to demand a bank pay its customer’s rates debt. Under the customer’s contract with the bank, the bank is able to deduct the amount from the customer’s account. It is standard for this provision to be covered in banks’ lending documentation.

“It affects a relatively small number of people but ratepayers sometimes contact us because they are already under considerable financial pressure. Seeing their account debited for rates arrears can be a shock,” said Ms Battell.

Complaints to the scheme usually stem from bank customers saying:
• they haven’t authorised the debit
• the bank failed to notify them
• non-payment of rates is part of wider dispute with their local authority.

“Our investigations into these complaints consider whether bank communication and information is adequate. It is usual bank practice to inform customers about the debit.

“We are not generally able to overturn payments but if we find the bank has done something wrong we will consider whether compensation for distress or inconvenience is warranted,” Ms Battell said.

ENDS

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