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Royal commission: Banks reject breach findings, admit conflicts in broker pay
Australian Financial Review Apr 5 2018 11:00 PM
James Frost
The big four banks have made a series of highly limited admissions in submissions made to the Hayne royal commission but largely rejected findings of misconduct put to Commissioner Kenneth Hayne by counsel assisting Rowena Orr, QC.
The Hayne royal commission invited parties given leave to appear – including banks, regulators and case studies – to respond to the scorching dressing down of the big four banks delivered by Ms Orr at the conclusion of the first two weeks of public hearings.
Among her findings were multiple instances of misconduct, breaches of the law and widespread failures to meet community standards and expectations. The banks, however, have almost unanimously rejected her findings in their responses.
Commonwealth Bank rejected Ms Orr's argument that the arrangements the bank had with its mortgage brokers were in conflict with both the Corporations Act and the National Consumer Credit Act, though it did admit there was a fundamental conflict of interest.
"This commission structure can lead to a conflict between the customer's interest and the broker's interest since the broker can maximise their income by getting the largest loan possible approved ext ending over the longest period of time" the submission reads.
The bank repeated its argument that first-movers in the space would be disadvantaged, saying in the absence of industry-wide change, outcomes for customers would not necessarily be improved.
Series of admissions
Commonwealth Bank also rejected findings it breached its obligations by: failing to adequately monitor the behaviour of mortgage broker head groups including its subsidiary Aussie, failing to disclose commission payments to head groups or brokers or that such behaviour constituted a breach of their obligations to provide services efficiently, honestly and fairly.
The bank did, however, make a series of admissions that behaviour in its credit card, regulatory reporting and attempts at remediating customers were below community standards and expectations. The bank also spends multiple pages and lists multiple precedents in its quest to define exactly what community standards and expectations are.
Like Commonwealth Bank's submission, Westpac's is equally forceful and also contains an acknowledgement the mortgage broker commission payments contains an inherent conflict and must be overhauled.
Westpac's submission also contains an admission it breached its responsible lending obligations with relation to the case study of Ms Thiruvangadam, who was bullied into buying a car on credit she could not afford.
It admitted it could have worked better with ASIC over its flawed program of credit limit increases but did not admit to any other breaches of the law.
NAB admits to seven breaches of its obligations under the National Consumer Credit Protection Act and the Corporations Act for the time it took to deal with a ring of corrupt bankers and introducers who were arranging and approving mortgages – including their own – to trigger one-off commission payments.
However, NAB also made a series of highly unusual statements to the commission in an accompanying document that states on 30 occasions that there isn't "sufficient evidence before the commission to enable a meaningful answer".
Processing errors
The bank also included in its submission that "rare exceptions notwithstanding, upfront and ongoing trial commissions ... do not lead to poor customer outcomes". But NAB says it supports an industry wide push to overhaul their use.
ANZ, which faced criticism over its use of benchmarks to determine mortgage borrowers' capacity, its provision of overdrafts and processing errors, launched a strident defence of its culture.
In particular it hit back at suggests that there was any culture that "favours administrative convenience over strict adherence to the law".
"ANZ takes its legal obligations seriously. Its approach towards compliance is highly developed, led from the top, and regularly revised and refined," the bank's legal team said.
The bank did, however, agree that it was open to the royal commission to find aspects of misconduct in the bank when its credit department green-lit thousands of overdrafts no questions asked.