BNZ targeting loan defaulters

The Bank of New Zealand is handing confidential customer information files to an external law firm in a bid to recover money from mortgage defaulters

It's understood the BNZ recently signed a deal with property and finance law firm Sanderson Weir, effectively outsourcing the bank's retail recovery work. This relates to the recovery and management of mum and dad mortgages.

While most major banks outsource their mortgage recovery work, The Independent has been told the files being handed to Sanderson Weir contain more comprehensive customer information than is usually the case.

"They are giving out full customer files,'' say people familiar with the situation.

BNZ retail director Chris Bayliss confirmed the arrangement. "It goes without saying that there is a comprehensive contract in place that covers customer confidentiality and ensures an appropriate, careful process.

"Feedback from the small number of customers involved has been positive. It enables the bank to contact them without delay and, overall, provide a better service.''

The BNZ's stance differs from the  policies of other local banks. Kiwibank, Westpac and ASB also engage outside law firms or collection agencies to collect debts, but provide only the debtor's name, address and amount owed. This is in line with Privacy Commissioner expectations that only information that is necessary, and associated with a genuine business need, is disclosed.

Sanderson Weir principal partner Jonathan Flaws declined to comment on its business with current or past clients.

There is scant regulatory oversight of the handling of customer information.

Banking Ombudsman Deborah Battel says she has not had to consider the matter because her office has not received any complaints. The Privacy Commission said it could not offer substantive comment without information and evidence about how BNZ treats customer information.

Meanwhile, the Code of Banking Practice  the code of conduct all major banks have agreed to abide by  does not specifically deal with the level of information banks should give to outside parties. However, it does say banks have a strict duty to protect the confidentiality of the affairs of current and former customers. Banks are also obliged to observe and comply with the Privacy Act 1993.

Privacy lawyer John Edwards says the confidential relationship between a bank and its customers is highly recognised in law. There is an implied requirement of minimum disclosure for any ancillary purpose such as debt collection.

He said it was hard to think of any legitimate purpose for full disclosure of account information.

"If you were to be charitable to the bank, you would say maybe they were making assessments on the recoverability based on other regular payments and expenses in that family, but the way you go about that is that you ask the person.''

Although BNZ's standard terms and conditions have a provision allowing the bank to give relevant information to groups such as law firms or credit agencies if a customer defaults on a loan, this would not waive a customer's right to have his or her information treated in confidence. The onus was on the bank to show how more information than a name, details of the arrears and details of the security over property was relevant.

However, Edwards said it could be argued that there was no disclosure between a bank and its law firm, since the firm was acting as an agent of the bank. Therefore, it might not be in breach of the law. Despite this,  it might be worth a complaint to the Privacy Commissioner if it could be shown that a customer experienced loss or  humiliation as a result of the information being given.

He cited a  Privacy Commissioner case note put out earlier this year, which said insurance companies, when assessing claims for medical cover, shouldn't require full disclosure of medical files and should get only what is relevant to the claim.

"It's a very similar kind of idea. In fact, medical records have the same kind of protection as financial records.''

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