This article examines de-banking in New Zealand’s increasingly cashless society, spotlighting the Gloriavale case where banks withdrew services based on controversial customer actions. It questions whether contractual freedom justifies such exclusions and considers legislative reforms to guarantee baseline financial access, especially amid growing digital poverty.
When was the last time you saw, let alone used, a New Zealand note or coin? Almost all financial transactions these days are electronic. Banks and others consistently encourage online rather than face to face interaction. An underlining problem here is digital poverty – if you don’t have a mobile phone or computer, you are increasingly locked out of New Zealand society especially as your online bank account, debit or credit, can only be accessed electronically. In theory, an individual could put their coins and notes under a mattress, but this is obviously unrealistic for a business. Part of this problem is where a financial institution such as a bank refuses to provide those electronic services to you. The issue here is the conflict between contractual autonomy – a bank is only prepared to provide its services to you on its terms and conditions – and your characteristics as a bank customer.
This conflict has been negotiated in two recent New Zealand cases, High Court and Court of Appeal involving the Gloriavale Christian community. The Employment Court found that it had been in breach of New Zealand labour laws in that work done for it had not properly been accounted for as employment and minors had been employed when they should not have been, pejoratively “slave labour”. A bank refused to continue banking Gloriavale on that basis, that is, it was an unacceptable customer for the bank as its activities breached the bank’s ethical banking standards. No other bank was prepared to provide banking services to Gloriavale so effectively it was de-banked. The High Court granted an interim injunction to stop the bank account being cancelled on the basis that the reasonableness of the decision was ultimately in question. The Court of Appeal took a black letter approach to the issue: the customer was aware of the bank’s terms and conditions and the bank, after giving proper notice, was within its contractual rights to decide that it no longer wanted to bank Gloriavale.
Some jurisdictions, reviewed in the High Court decision, take the position that irrespective of a bank’s view of a potential customer a certain basic level of banking services must be provided to an applicant. It is interesting in this respect that s 44 of the Human Rights Act 1993 expressly refers to the refusal of banking on the grounds of discrimination as a prohibited activity, raised in the High Court but not the Court of Appeal decision.
If no other bank is prepared to offer Gloriavale banking facilities, what then? A New Zealand First members bill has been selected for Parliamentary consideration: the Financial Markets (Conduct of Institutions) Amendment (Duty to Provide Financial Services) Amendment Bill. There are two aspects to this Bill. First, it states that a bank must not treat any consumer less favourably on the basis of any direct or indirect environmental, social or governance consideration, any climate reporting standard or the customer’s industry (such as for example, the sale of petrol). Second, and here is the probably unworkable exception, a bank can do so if it has a valid and verifiable commercial reason, or it is otherwise legally permitted.
While the Bill’s future is uncertain and its lack of guidance problematical, the underlying problem will not go away.
There are a number of possible solutions. Legislation for the provision of a baseline level of banking services, which if applied to all banks would remove any argument that one bank was endorsing an activity not supported by its competitors. The High Court decision could be revisited and the emphasis put on the management of real risk. For example, Gloriavale had been found wanting in the employment area but this was in the past and not a reason for de-banking it for the future. This approach judicial or legislative would require a bank to justify closure on the basis of reasonableness not as the mere exercise of the contractual right to do so. A combination of the two might provide the basis for reconciling contractual autonomy with a customer’s right to act in the electronic banking world.
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