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Zag's systems continue to be flawed
August 5, 2016
4:15 pm
Loonie
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NorthernRaven said

You would choose "At Maturity" for fully compounding interest, otherwise one of the payment options if you wanted payouts at certain intervals. I don't think I've ever seen your distinction between interest "paid" and "paid out". "Paid" would generally imply monies are being extracted from the GIC and placed into the customers hands in some form. They correctly state that the interest is calculated daily and compounded (not paid) monthly, as in "included with the principal for interest calculation purposes". Paid is separate, and you are merely stuck with a payment option you don't want (monthly) rather than the one you do (at maturity). There doesn't seem to anything misleading. With the current online application you would have to explicitly have chosen the payment option; I don't know if it was somehow different when you arranged for your GIC.

The fact that NorthernRaven needs to direct the purchaser to choose 'at maturity' in order to get the compounding interest and has had to provide her/his own redefinition of the terms demonstrates the problem with Zag's T&C.

When the T&C tells you that you are going to get compounded monthly interest, you have reason to assume that is the norm for them, regardless of whether any other bank does likewise (which you may or may not know). And you have reason to assume that you would not be opting out of this if you chose the monthly option.
"Paid" may mean "separate" in some people's minds, but not in others. "Paid" could equally mean "paid into the GIC", as there is no other way to get "monthly compounding". It would be what someone would expect if they did not have any reason to assume that "paid" meant "separate".

Again, I think only someone who has worked in the banking or financial industries or who has a familiarity with it beyond that of the average person would make the interpretation that NorthernRaven has made. The terms are poorly written, and the complainant is entitled to restitution. I would certainly have been confused by this kind of language. I would have perhaps (not necessarily) have had the wits to inquire about it, but certainly would not have when I was younger.

The question will be whether the Ombudsman has sufficient knowledge of how people unschooled in the special terminology of the banking industry would read these terms.

I'm wondering, what your background is, NorthernRaven, as you seem to know a lot about how this industry operates and we have benefitted from that in the past.

August 5, 2016
5:12 pm
NorthernRaven
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"Paid" is a pretty standard word; I don't think I've redefined it... :)

If I see a question asking me how often I want my interest to be paid, I think I like most people would expect exactly that - payments to me at that frequency from the GIC. Assuming it somehow means "paid into the GIC" really makes little sense - that's compounding, which the terms explicitly indicate happens monthly. There's nothing that "goes into" the GIC at the monthly compounding - the interest has been calculated daily, and it merely gets included with the principal as the amount that will be used for interest calculations in future. The monthly payment option is merely a special case since the accumulated interest is being immediately paid out and so the amount compounded in will be zero!

This is bog-standard compound interest stuff, which anyone buying a GIC should either be familiar with, or at least go "huh" and get clarification when asked how often they "want my interest to be paid". There's no real lack of clarity, and that whole "paid into the GIC" concept doesn't seem like a reasonable interpretation even for an average GIC buyer. If Zag is unable/unwilling to change the GIC as a customer relations gesture, I'd predict basically a zero chance that some ombudsman would rule otherwise.

Just my opinion - I'm not a financial type, but I do write computer code, which forces you to decipher and model things in a logically consistent way that actually goes from A to B to C... :)

August 5, 2016
5:33 pm
Bill
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Northern Raven, I'm with you on this one, it was pretty clear to me too. Plus Just the facts said "I have held many GICs", so not a neophyte. No matter what safeguards it's normal for sometimes there to be misunderstandings between humans, things happen, and not every misunderstanding is an indication of a systemic problem with the need for 3rd party or regulatory intervention. Lesson learned: Responsibility is not one-sided, it's shared by both parties, so if something is critical to you, don't assume, make sure to double or triple check, even if it looks clear to you, before you commit to a contract.

August 5, 2016
9:43 pm
Loonie
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I thought it was obvious, but this is the redefinition to which I referred earlier:

""Paid" would generally imply monies are being extracted from the GIC and placed into the customers hands in some form. They correctly state that the interest is calculated daily and compounded (not paid) monthly, as in "included with the principal for interest calculation purposes". Paid is separate, and you are merely stuck with a payment option you don't want (monthly) rather than the one you do (at maturity)."

The problem with putting the onus on the purchaser to clarify the unclear language of the institution is that the consumer doesn't necessarily realize that what seems clear to them is not what was intended by the institution.

In any event, I rest my case.

August 6, 2016
7:52 am
Norman1
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My first thought when I went through the GIC purchase part of the Zag's web site was that "how often would you like your interest paid?" referred to how often the accrued interest was posted and compounded.

I had wondered why anyone would select anything but "monthly". After all, why would anyone wish their accrued interest to be posted/compounded semi-annually, annually, or at maturity instead of monthly with no adjustment in the rate?

Now, with this discussion, it all makes more sense. I think it would have been clearer if these were the choices:

  1. credited and paid out monthly
  2. credited monthly and paid out semi-annually
  3. credited monthly and paid out annually
  4. credited monthly and paid out at maturity
August 6, 2016
8:18 am
Norman1
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Zag should be able to let people change how often the interest is paid out of their GIC's afterwards. According to their terms, the interest is credited/compounded monthly regardless.

That's different than at most financial institutions where the GIC interest would be credited annually. At such institutions, the option to pay out interest monthly or semi-annually changes the compounding to match the pay out frequency. That's why the rate is slightly less when the interest is to be paid out monthly or semi-annually.

August 6, 2016
10:04 am
Loonie
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I agree with Norman. Zag has chosen to do things differently than other FIs. The customer should be able to take that at face value.

August 8, 2016
7:38 am
NorthernRaven
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Just to add to the Guide for the Perplexed, here is Oaken's version of the question from their online form; it similarly provides various options for the payment of interest out of the GIC:
Oaken GIC interest question
I don't know how many of the GIC companies have both multiple payment options and an online form that can be checked, but I'd be surprised if the intent is any different elsewhere, or if any GIC institution uses anything like "interest paid" to refer to internal compounding periods, or anything except paying interest out of the GIC to the client.

August 8, 2016
9:13 am
NorthernRaven
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EQ isn't doing online GICs yet, but its parent Equitable has them in other channels; they have similar options on their application PDF:
Equitable GIC

August 22, 2016
11:05 am
Just the facts
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Wow, I am impressed with your enthusiasm regarding this issue.
Since you have all been so kind to expend your energy, I felt compelled to update my progress so far. Firstly, my email correspondence with Zag Banks Ombudsman.
Sent: Monday, August 08, 2016 11:53 AM
To: ombudsman@bankwest.ca
Subject: FW: Zag Bank CRM:0127

Good Morning
It is likely best to call me and I will walk you through my issue with ZAG BANKS 2 year GIC.
This is the first GIC I have held where the Interest generated is sent to a different account without my authorization or awareness. When I initially set up the account, the system did offer a choice of how often I would like the interest paid. Nowhere was there ever any indication that the interest would be paid out, only language stating it would be paid (compounded).
This is fraudulent in my opinion.
They clearly state in the terms and conditions how interest will be paid.
ZAG GIC -Terms and Conditions
Interest is calculated daily, compounded monthly and paid depending on the payment option selected for 1 to 5 years terms (either monthly, semi-annually, annually or at maturity)

I am expecting COMPOUNDED INTEREST.
I am sure a small claims judge will agree with me.
That’s it.
I look forward to having this issue resolved.

From: On Behalf Of ZagBank Ombudsman
Sent: Monday, August 08, 2016 1:42 PM
To:
Subject: RE: Zag Bank CRM:1012
Good afternoon,
We are very sorry to hear of your issue.
Your email will be sent to the appropriate person for review and investigation.
Regards,
Ombudsman Office

Sent: Thursday, August 11, 2016 1:56 PM
To: 'ZagBank Ombudsman'
Subject: RE: Zag Bank CRM:0127
Good afternoon.
I recognize that you are pretty sorry.
Now that we have that established, let’s resolve my issue.
Who is the appropriate person?
When will they begin an investigation?
Regards,
Fraud Victim.
A Zag Bank Representative called me within an hour.... Since then they, did reverse the interest that was paid to my Savings Account and put it back into the GIC. The caveat on this is that mysteriously, my 2 year GIC has now become a 1 year, 9 month GIC, AND THEY DID NOT ADD THE ACCUMULATED INTEREST TO THE NEW GIC.
I believe that Zag has hired Arvato CRM Solutions to handle customer relations. I perceive this as a very poor business practise. I believe that this PR company would like to report an impeccable track record of resolving issues, albeit that most customers simply give up in frustration.
I am very disappointed that the website has still not been altered to reduce the confusion.
Perhaps management are not even aware. The PR firm gets more business this way.
Prior to this fiasco, I was a strong advocate of Zag Bank. I am disappointed with their ongoing mishandling of this case, as I prefer to support alternatives to the big banks. I am still waiting for resolution to having my accumulated interest added to the 1 Year, 9 month GIC, or better yet, to the original 2 Year GIC. I believe this forum may have inspired them to take action!!! Thankyou all.

August 22, 2016
2:04 pm
Loonie
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As you probably know, you still have one more level of complaint, which is to the federal banking ombudsman.

I think that outsourcing complaints is sleazy; also stupid from a PR point of view. When a person has a complaint, they specifically wish to speak to the bank staff member who is in charge of complaints, and rightly so.

I can't really comprehend the "solution" that you have been offered.

We have so far made two complaints to banks through official channels. The first went to BMO and was satisfactorily and cordially resolved by a person who worked in the BMO VP's office. He investigated, got back to us when he said he would, fixed the problem, made the change we recommended in their practices and compensated us for our trouble in the way and amount we requested. He did everything perfectly.
The second was with Luminus,which was resolved, but did not leave us with a good feeling as their practices do not appear to have changed and we had trouble communicating with them. It is actually for this reason primarily that we will discontinue the membership when the current promo ends. They don't seem to have learned that it really matters how you handle complaints and how well you train your staff. We dealt with too many people there who really didn't know what they were doing.
As interest rates continue to fall and the differences in rates between FIs gets correspondingly smaller, CS will matter more and more, at least to us.

I find it annoying when the person who is listed as the bank's ombudsman (or at least his/her office) is not the person who gets back to you. With Luminus we were passed off to an underling. If the underling is going to be doing the work, it would be more honest to list that person as the ombudsman.

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