Banks defend cash twilight zone for APs

By Deborah Hill Cone

Friday 27th February 2004

In the face of mounting criticism from consumers, Westpac Bank yesterday defended its policy of taking three days to clear an automatic payment, even when shuffling cash from one Westpac account to another.

But the bank insists it does not get to "play with" the money for those three days as many recipients would be eligible for interest on the funds, despite not being able to access them.

It is not widely known that so-called automatic payments (APs) are far from automatic or instant. Banks are entitled to take three days to clear funds transferred by an AP, despite the absurdity that a customer could manually draw out the cash and re-deposit it the same day with no delay.

On one occasion brought to NBR's attention, a payment from one Westpac account to another took three days to clear, despite funds being available  with the money falling into a twilight zone where it is not able to be accessed by either party, except, of course, the bank.

"We have been pressing this point for a number of years," Consumer's Institute chief executive David Russell said. "We are bemused at the length of time the banking system takes to clear funds."

Bankers Association chief executive Errol Lizamore said there were two types of APs "interchange" transactions, which were between accounts at different banks and "on us" transactions from accounts within a bank.

He said he would be surprised if an "on us" AP took three days to clear.

Was it permissible for banks to take three days for an "on us" transaction?

"You have asked me a question which I can't answer. Provided the paying account has cleared funds you would have thought it would take place overnight."

Lizamore said he would find out the details of the situation to answer NBR's query. When called back he said his response was now to be "no comment" on the question of why an "on us" transaction should take three days.

He did volunteer a comment about the use of the money, however, saying interest would be paid depending on the nature of the account, the terms and conditions and the conduct of the customer.

Earlier, Lizamore said the association was "revisiting the issue" of clearance times. "The problem is if a customer sees a balance on their own account it does not mean it is cleared."

Later he said he would make no comment. Westpac media relations manager Paul Gregory said that under the New Zealand Banking Association rules an AP is not "cleared funds" and the originating customer's bank has the right to dishonour the transaction up to and including the following two business days.

"This is to protect against instances where, for example, a payment into the account from which the funds are being paid away from is dishonoured on the same day as the AP is being transacted."

Gregory said the three-day delay was not a blanket rule. Even if funds were clear in the departing account they might be blocked if a young person held the accepting account, as was the case in the example brought to NBR's attention.

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