The Argument of Agency: by Denise L Brailey BFCSA (Inc) 2011
Since the release of this paper, the cases won include O'Donnell (NSW 2009), Schmidt (VIC 2010) and Burns (WA 2015) and since then there have been "spin off cases," also defeating the same bank induced argument intentionally and mischievously created and presented to the Courts by Legal Teams of the Banking Sector. The Master Servant relationship applies to the advantage of the customer and not the interests of the Banks. The Broker Channel has been created by Lenders to intentionally escape responsibilities in lending. The Judges held the brokers are selling agents of the Banks and as such, sellers cannot serve two Masters. Banks are therefore liable in law for any error or omission or fraudulent actions by the Sellers.
THE ARGUMENT OF AGENCY - released by BFCSA (Inc)
Firstly, on suggestion of the BFCSA (Inc) Committee, I wish to provide our own interpretation on the Argument of Agency.
NINE JUDGES – Understanding the Lenders' Model in relation to Low Doc Lending.
In line with six verdicts by Nine Judges in Six recent and similar cases (2006 – 2011) in Four jurisdictions involving Four State Supreme Courts, the Lender contracted a Service Provider by way of detailed Agreements.
Each Judge found in favour of the Defendants (the victims of these crimes). Each Judge ordered that the mortgage be discharged within 30 days and the Title Deeds be restored to the home owner and, that there be no fees and charges now or in the future and held the Lender as being 100% responsible for the lack of prudent lending involved.
No apportionment of liability was passed onto the client of the lender. One case went further to the Court of Appeal and three Judges, agreeing with the Trial Judge, were unanimous in their findings that favoured the original defendant.
Lenders aware of the higher risk of fraud
Lenders involved in Low Doc Lending were fully aware of a higher degree of risk of fraud and forgery and specific dangers in introducing Low Doc Loans to consumers. Unsafe policies in the lending approval process caused loans across Australia, to be granted to people who would never, under prudent lending practices, be deemed as having an ability to afford loan repayments.
In at least two of these cases I developed a close relationship with the aggrieved parties with hands-on experience in collecting initial documentation leading to funding some of these cases, and the preparation of legal arguments. I still have copy documents that were used as evidence in those trials. My experience in these matters is well regarded.
The Broker Model
“The Lenders “ (in each of these cases) were also aware that the Service Providers and Mortgage Manager Companies would be hiring untrained Introducers to specifically “ introduce” new clientele to the banks….the sole purpose of utilising the “Broker Model.”
The Lenders received financial details and identification documents which only a prudent lender would understand, would lead to conclude that the intended customers of the bank could not demonstrate a valid ability to repay payments. The LOANS in each case brought to trial, according to the Judges, should therefore have been declined.
The Lenders did not trust the “Broker Model” and knew the pitfalls. Therefore, despite the known risks, Lenders hired Business Development Managers (“BDM”) to look after Lender interests. The BDMs were essentially bank officers in the field and had regular face to face (and email) contact with the Introducers.
According to the Judiciary examining the raft of evidence against the Lenders, the Low Doc Product – primarily to be utilised as a loan offered to business people - ought never to have been offered to ordinary people on low-moderate incomes.
Some of the Judges expressed their thoughts of “how unusual a case” this was. The reason for the “unusualness” became clear: the victims of Low Doc Scams surviving on a pension or low income had zero funds to pursue a legal remedy through the courts. A thought not lost, from inception, on the lenders involved.
As a social community issue, funds were gathered to take some of these cases to court, funded by interested consumer groups and state agency funding. The Courts became an important venue for consumers to expose the bankers’ nefarious activities in a quest for justice.
Each of these cases involved fraudulent Loan Application Forms, no phone calls to clients, no regard for the purpose of the loan, no regard for ability to repay the payments, asset lending, no regard for the financial well-being of the clients of the lenders and no copies of the LAF delivered to the client.
Irrespective of who was named as the Broker/Introducer, the Courts found the victims were indeed the client of the lenders involved.
Some of the aggrieved were pensioners and others were struggling families on low to moderate incomes. They were targeted by the banks due to their having a home as an asset: in most cases their residential home was mortgage free.
The Judges also found the bank was privy to information regarding these practices which the clients were not privy to: an unfair playing field. The most scathing of these comments were centred upon what the banks KNEW at the time of loan approval, namely:-
The age of the persons as to ability to repay and in some cases
Some were Centrelink recipients
The correct income of the applicant
The knowledge that the home was the only asset
Lack of ability to repay the payments
The ABN number was a recent invention and not in line with lending policies
Additional information was pure nonsense and could not be relied upon.
Borrowed funds would be used to pay back the bank with its own funds.
The higher risk of fraud in using the “Broker Model.”
The Audits on the Client Files would reveal the flaws.
No phone calls took place to verify the details with their own clients.
Regardless of the above, the loan officers on three levels, approved the loan applications.
In particular, the Loan Application Form (“LAF”) had been fraudulently dealt with by persons unknown without the client’s knowledge or authority: the inference being it could have been the bank officers themselves as they processed the loans and had produced several copies of the LAF, none of which were “identical.” Universally, the victim defendants had never been given a copy of the signed LAF or other documentation, in line with what lenders admitted was “standard industry practice.”
The Judges found that ONE PHONE CALL to the client could have averted the tragedy for the victims.
THE BUSINESS DEVLOPMENT MANAGERS “BDM’S”
The Lenders envisaged that the “secret LAFs” would never be discovered and strongly suggested an intention to deceive being that the Lender would then blame the Broker. The Broker/Introducers had been taught by the BDMs on how to “handle the paperwork.” The victims would never come into contact with the BDM, yet there was a direct relationship established between Lender and BDM.
The BDM’s were employed by the Lender.
The Lenders set up the actual strategy in around 2000 and dubbed the entire process as being “standard industry practice.” To achieve the aim of big volume business, the Lenders identified a “new market” that they universally dubbed ARIPs (Asset Rich and Income Poor).
Invitation industry seminars promoted by the banks, promoted the product known as Low Doc Loans and suggested the “new” target market: the industry reference for new clients became ARIP’s.
By 2004, due to the high level of exaggerated incomes and other suspect loan processing activities, most banks and non-banks had abandoned the direct hiring of Brokers. The lenders and their lawyers developed the “Broker Model” as a way of bringing in new “bank” clientele from the same source, yet minimising risk for the bank.
Banks involved had been hiring Brokers on a lucrative commission basis. The idea developed amongst Bankers, that if they hired a subsidiary company to become a licensed (AFS licence) Service Provider (“SP”), then the SP’s would hire the Brokers. So, how could the banks pay the commissions and stay one-removed? The banks paid commissions to the SP Company, who in turn hired the newly named “Introducers,” and passed the commission’s down- stream.
CREATORS OF THE PRODUCT
Banks created the commission structure, the Agreements between players, the target market, the forms to be utilised adorned with the banks’ LOGO’s. The Model ensured the intended victims would never seek legal advice, never question the “integrity of the banks” by the use of the Logo. More importantly, those who had finalised payments on their own home – a life-long achievement- could be tricked into parting with their Title Deeds for just three to six months: “try it and see.”
The victims had no idea these loans were thirty year loans and some of them were already 80 years of age or more.
The Brokers were told by the BDM’s that “unless you fudge the figures” you won’t make any money. The banks maintained a guaranteed steady stream of new clientele by the use of Quotas.
These Lenders were after volume and had earmarked a “$50 Billion new market.”
For the Bankers, it was business as usual. Low Doc Loans were the key. The product was more expensive than a “normal” bank loan, twice as risky, yet sold to people who would never be able to apply for a cheaper loan of any kind.
These cases are the tip of the iceberg. The instances of “asset lending” are on a grand scale.
The victims did not walk into a bank and ask for a loan. The entire structure was geared around elderly people being spruiked with a “new strategy” to earn a few extra dollars per year via investment plans.
No thought was given as to the financial risk of the likely clientele.
As described, Lenders outsourced management of lending to Service Providers (“SPs”) and then rehired the same Introducers, whom they employed previously, via the SPs, fully aware of the heightened risk of fraud to consumers.
In essence: Lenders wanted to continue a lucrative flow of clientele from this source, yet rid themselves of any risk of loss and in doing so transferred the risk of fraud and forgery onto the most vulnerable people in our community.
The Judiciary noticed various points which led them to their verdicts in favour of the victim.
So how many others are trying desperately to stop the Lender from taking ownership of his/her home.
Each of the above “standard practices” would lead to imprudent lending practices and a complete lack of adherence to Bankers’ own lending policy guidelines.
All of the above was driven by greed and carefully crafted commission structures. All commissions originated from the Lender.
How did these creators and masters of the universe (15 or more Australian Lenders) develop the same idea, same concept on the same day and then target the same group of people with the same lack of ethics?
How did they develop the same forms, identically worded letters to clients on the same day?
How did they decide between themselves what would become “standard industry practice” AND then KNOW these activities were standard industry practice when questioned by authorities?
STRUCTURE
At times this structure followed up to five layers, all of which added to an evil intent on the part of the Lenders involved.
As a manufacturer of the product, these same Lenders chose to blame their own customer for purchasing the faulty, risky and yet finely crafted Low Doc Loan product.
Warranties with the SP’s were set in place to protect the Lenders, not the consumers. Therefore the Lenders anticipated fraud. This paradigm shift in the way mortgages were handled knowingly placed all consumers of Low Doc Loans at risk of sub-prime lending practices. ASIC acknowledged at the time they held grave concerns for consumer protection and cited predatory lending practices in the banking sector.
TARGET MARKET: ARIPS
The Lenders engaged Service Providers to recruit untrained Introducers. Lenders then employed BDM’s to entice “Introducers” to furnish their Lender with new clientele.
The targeting of pensioners and low income families and the misuse of the product known as Low Doc Loans could only be effective if handsome commissions flowed downwards from Lender to Service Provider and the untrained Introducer.
Lenders set the “loan approval” QUOTAS as a requirement of banking and finance participation agreements.
Maladministration in lending became obvious to the Judges, in the misuse of ABN numbers and in particular, the three levels of “lending approval process” being systematically abused.
FRAUDULENT LAFS
The absence of any copies of documents such as signed Loan Application Forms (“LAF”) and other supporting forms also became “standard industry practice.” The potential bank customer was rarely furnished with crucial copies of the document known as the LAF. Only after demanding copies of these LAFs, were the fraudulent exaggerations of income and assets revealed.
In some cases the number of children was also deliberately reduced without the customer’s knowledge or consent. This practice became known in BDM circles as “tweeking.” Parents with two children were marked down as one child........again without the knowledge or authority of the customer.
Such blatant dishonesty in banking and financial products has so far led to three Federal Inquiries and specific cases being brought to court with public funding in four states.
NEVER PHONE THE CLIENT
Within this structure, involved members of the Australian banking sector made a corporate decision to NEVER phone the “client” as if they were the client of the Introducer. The Judges were particularly critical of this activity and the knowledge the banks had at the time, including the regular audits on client files contained within the Agreements.
C OF C FORMS
The banks designed a “Confirmation of Conversation Form”, with very specific details on how income was to be verified. Yet no phone calls took place. One phone call on each of the cases would have revealed the fraud, prior to the funds changing hands, and in each case (under prudent lending practices) the loan would have been declined.
CREATORS
Lenders had set up the structure, the forms, the legal documentation, the Agreements and commissions payable.
MALADMINISTRATION IN LENDING
Maladministration in the lending process has been put to the test via these cases and it is painfully clear n reading these cases that all nine judges believe the banks were “fully aware” that certain checks and balances would never take place, and knew the higher risk became paramount to the financial well-being of its future customers.
After collecting evidence of these activities the past eight years, I agree with those findings. In fact I praise the Judges for their fairness in sifting through the arguments raised.
INTENTION T DECEIVE
Each LAF presented in Court, contained obvious examples of Maladministration in Lending. The plan by the Banking Industry players involved constructing a pathway for the LAFs never to see the light of day, thereby rendering their own customers powerless in their ability to save their homes.
LEGAL ADVICE THWARTED
Clients are also collectively dissuaded from getting independent legal advice by a number of tricky methods which we can explore in the future.
LACK OF ETHICS AND MORAL TURPITUDE
These Lenders displayed a complete disdain for the law and for justice. They showed a complete disregard for the ability of pensioners and low income families to repay the payments of these horrendous loans. Australian Banks and Non-Banks viewed their own customers as cannon-fodder on the altar of corporate greed.
Of deep concern to our agency is the fact that these Lenders must have collectively agreed never to telephone the “client.”
How could each Lender know what the other was doing unless part of a magnificent and collusive plan to steal elderly people’s homes?
It is for this reason, being part of the Lenders’ overall marketing strategy, why the “Argument of Agency” becomes a major issue.
I have found evidence of the same methods used in all states in Australia and New Zealand (involving Australian Banks), demonstrating an abhorrent intention to deceive the public for the sake of volume business involving asset-lending.
Thankfully the Nine Judges did not miss the vital clues to the Bankers’ overall intentions and acknowledged these were indeed questionable practices.
Our Australian Courts have spoken and the Judges themselves are appalled at this behaviour to the extent one member of the Judiciary, took it upon himself to quote 17 pages of the Lender Agreement ( a universal 90 page document) demonstrating the nature and extent of the deception used.
Collectively, the Lenders created the product, the strategy, the training and recruitment channel, the contracts, forms and promotional material and also employed their own highly paid BDM’s.
Our Banks stand condemned for their sub-prime lending activities.
SUB-PRIME LENDING PRACTICES
The covert determination to hide copy documents, the reluctance to furnish the complete documents when asked by the Police, is proof of a systematic intention to deceive the public. The strategies used were in line with Sub Prime Mortgage lending, yet banks have recently referred to these defaulting loans as “non-prime” lending.
I for one, fail to see the difference.
The Australian and Securities Investment Commission (“ASIC”) was warned of these dirty lending practices and their prevalence in the banking industry in 2003. In fact, “ASIC” led the charge to abolish commissions and numerous people called for Inquiries into the Banking Sector during 2003 – 2008. All of these issues raised by the Judges are shocking points of fact.
So how did these cases come to light (a shock for the Lenders) when the respondents were the poorest people in the community? Agencies involved in investigations and consumer advocates were appalled by these activities and complaints. Funding was raised from a number of areas including State support to run test cases against the banks.
Lender arrogance failed to contemplate community outrage.
I asked one lawyer engaged by one of the Lenders:”do you disagree with these Nine Judges?” The lawyer responded: “No I did not say that.”
The use of the “Broker Model” is a key indicator of a collective intention to deceive.
Had the collective intention been to Protect the Consumer, then the ARIP market would have been avoided at all costs. Had that vital decision been made for the purest of intentions, the loans would have been declined and the projected “$50 Billion New Market” would have produced few dollars: banking ethics and reputations would have been protected.
The Lenders involved, understood the commercial risk but wrongly believed (to the detriment of shareholders) the banks were protected from prosecution or blame for the following reasons:-
1. The collective absence of any documentation to the client.
2. The collective decision to never phone the client (one phone call would have blown the whistle).
3. The collective low income factor as the target market, prohibiting most victims from obtaining justice and for there to be little likelihood of exposure for Lenders as to their involvement.
4. The Lenders’ legal teams’ collective interpretation of the Argument of Agency which Judges have since deemed erroneous, bringing down a string of adverse findings against the banks.
5. The collective decision to allow the use of ABN numbers “for a day” and for approval officers to never verify the bona fide of the details on the LAFs.........suggesting a known fraud was in progress all the way through to the loan processing stage.
6. Of particular concern is the fact that Maladministration in Lending has been permitted to continue as “normal” practice in an estimated $50 billion ARIP market with little scrutiny.
No-one in the banking sector is taking responsibility for this dreadful situation. Lenders are openly suggesting that “we too are victims of the Brokers....” That notion is inconsistent with the overwhelming evidence to the contrary.
We have all come a long way from the results of Elkofairi and Khoshaba. The evidence presented at those trials is only a fraction of what could have been submitted in light of more recent research and investigations. Yet thanks to the members of the Judiciary who could see what had occurred and in seeking the absolute truth, ruled in favour of the victims.
I am now flooded with calls for assistance and the pattern of banking deceit, is as obnoxious as it is obvious.
BFCSA Inc intends to call upon three respected law firms to examine these cases and furnish us with their own interpretation of the Argument of Agency, based upon the most recent cases.
My intention is to furnish FOS with these Legal Opinions.
In my view, what is really required is a Royal Commission into the Banking Sector as suggested in 2001. I appreciate an Inquiry into the Banking Sector is a matter for Government. However, the need is clearly urgent given the escalation in similar cases, during the past decade.
Denise L Brailey
Hand delivered to the Financial Ombudsman 2011
NB: (first version 2009 was written to provide lawyers who were running cases with The Mechanics of the Fraud. Copies sent to ASIC).