Senior counsel assisting the commission, Rowena Orr QC, blasted the Commonwealth Bank today for submitting numerous spreadsheets rather than coming clean about misconduct over the last decade.
“CBA’s submission was high level and used a general approach. It did not disclose the totality of the conduct that constitutes misconduct, or conduct that falls below community expectations,” Ms Orr said.
“The volume of the material provided made it very difficult to assess the level of misconduct.”
Ms Orr also attacked the National Australia Bank for their submission, which “did not grapple” with commissioner Kenneth Hayne’s request for a full confession of misconduct and conduct falling short of community standards and expectations.
Westpac admitted it still needed to submit more information, she said.
Ms Orr opened the commission’s first full public hearing which will focus on home loans, car loans, credit cards and add-on insurance among other issues.
She said CBA’s first submission failed to disclose the full extent of misconduct or conduct that fell below community expectations, “as a number of other entities had done”.
It only had a “a large volume of spreadsheets containing ‘all details of compliance incidents” that had been lodged since 1 January 2013.”
Her comments came as NAB CEO Andrew Thorburn said the problems with one of its home loan programs are regrettable and unacceptable.
Mr Thorburn says the bank has made extensive changes to its ‘Introducer Program’, which will be the first case study examined by the financial services royal commission.
“While many of the details of this issue are already known, the focus of the royal commission will again demonstrate that what occurred is regrettable and unacceptable,” Mr Thorburn said ahead of Tuesday’s public hearing. NAB in November revealed about 2300 home loans may have been issued without accurate information or documentation since 2013.
Twenty bankers were sacked or resigned and another 32 were reprimanded over the issues connected to the introducer program, where NAB pays commissions to accountants and financial planners for successful lending referrals. The problems were identified in 2015 through NAB’s whistleblower program. Mr Thorburn said none of the issues are acceptable.
“They should not have happened in the first place, and they show that we haven’t always done right by our customers or treated the community with respect. This is not good enough.
“It’s important now for us to move forward by learning from the past, owning up to mistakes and fixing them — and importantly, making sure they never happen again.”
The news comes as some lenders and brokers have falsified documents to push through larger home loans that borrowers can’t afford, a royal commission has heard. Hundreds of Australians have raised concerns with the financial services royal commission, including a lack of appropriate inquiries about the suitability of loans.
The inquiry is focusing on issues with mortgages, car loans, credit cards, overdraft facilities and add-on insurance products in a two-week public hearing that began on Tuesday.
Ms Orr said in many cases the banks have acknowledged aspects of conduct that was unacceptable or detrimental to consumers.
The banks have paid $250 million in remediation to 540,000 consumers over issues connected to home loans since July 2010, the inquiry heard.
The biggest issue related to processing or administration errors but it also involved reliance on fraudulent documents or breaches of responsible lending laws.
Over the same period, almost $90 million in remediation has been paid to 17,000 car loan customers and more than $11 million to 34,000 credit card customers. Ms Orr said $128 million in remediation has also been paid to consumers over add-on insurance products, with the bulk connected to car loans, since July 2010.
The submission has received about 1900 submissions, almost half of which relate to personal finance issues.
Ms Orr said some Australians have expressed concerns that financial service entities and brokers have falsified documents to obscure customers’ true circumstances to obtain a bigger loan.
“Their submissions relay concerns that the consumer is then left in a precarious position of paying off a loan that should not have been approved for that consumer in the first place,” she said.
Concerns have also been raised about consumers being granted pre-approved credit cards or limit increases without having their financial situation verified. “Some Australians expressed concerns that consumers who are already struggling to make credit card repayments are offered credit card limit increases without the means of making repayments,” Ms Orr said.
Some people were also being offered credit cards when a personal loan was more appropriate.
Consumer groups have also raised issues about systemic irresponsible lending for cars, particularly for low-income and disadvantaged people.
ROYAL COMMISSION PROBES INAPPROPRIATE CONSUMER LENDING
1. RESIDENTIAL MORTGAGES CASE STUDIES
* NATIONAL AUSTRALIA BANK’S INTRODUCER PROGRAM AND FRAUDULENT LOAN APPLICATIONS
NAB in November revealed about 2300 home loans may have been issued without accurate information or documentation since 2013.
The issue relates to its Introducer Program, where it pays commissions to accountants, solicitors, financial planners or real estate agents for successful lending referrals.
Twenty bankers were sacked or resigned and another 32 were reprimanded.
* AUSSIE HOME LOANS FRAUDULENT BROKERS BROKER ARRANGEMENTS
Regulator ASIC took action against several Aussie Home Loan brokers in 2015 and 2016 for submitting false or misleading documents in home loan applications. Commonwealth Bank upped its stake in Aussie to 80 per cent in 2012, before taking full ownership in August 2017.
* CBA ACCREDITATION OF BROKERS AND BROKER ARRANGEMENTS
Australia’s biggest bank owns all of Aussie and 20 per cent of broker Mortgage Choice.
CBA is imposing new accreditation standards for mortgage brokers, including minimum education standards.
2. CAR FINANCE
* WESTPAC/ST GEORGE CAR FINANCE PRACTICES
The details for this case study are not yet available.
* ANZ/ESANDA CAR FINANCE PRACTICES
ANZ was fined $5 million and will pay the same amount in remediation to about 320 customers who took out loans through its former Esanda car finance business between 2013 and 2015.
The bank reached a court-approved settlement with ASIC in January after accepting it failed to take reasonable steps to verify customers’ financial situation in 12 car loan applications from three brokers.
The Federal Court in February found ANZ inappropriately relied entirely on pay slips received from the intermediaries, in circumstances where it knew they were a type of document that was easily falsified and it had reason to doubt the information.
3. CREDIT CARDS
* WESTPAC OVER UNSUITABLE CREDIT CARD LIMIT INCREASES
Westpac refunded $11.3 million to 3400 customers over its credit card limit increase practices.
The issue related to whether customers’ income and employment status were directly reconfirmed in the limit increase application process. The bank reviewed credit limit increases previously provided to affected cardholders where they subsequently experienced financial difficulty, ASIC said in February.
* CITI OVER THE IMPOSITION OF INTERNATIONAL TRANSACTION FEES
Citibank refunded about $5 million to 230,000 customers in 2017 over its disclosures about international transaction fees on credit cards. ASIC said Citibank failed to properly disclose that the international fees applied to Australian dollar transactions where the merchant used a bank or entity based overseas to process transactions.
4. ADD-ON INSURANCE PRODUCTS
* CBA CREDIT INSURANCE IN CONNECTION WITH HOME LOANS, PERSONAL LOANS AND CREDIT CARDS
CBA is refunding $16 million to 140,000 customers sold personal or home loan protection insurance who may have been ineligible to claim some benefits due to their employment status at the time they bought the policies. It followed a $10 million refund program last year to 65,000 customers sold credit card plus insurance when they were students or unemployed, and therefore ineligible to claim on it.
CBA last week said it will stop selling its current credit card plus and personal loan protection products that provide cover for repayments, although the home loan protection product will continue.
5. CREDIT OFFERS
* ANZ UNSUITABLE PRE-APPROVED OVERDRAFT OFFERS
ANZ paid $212,500 in penalties in 2016 for breaching responsible lending laws in making offers of overdraft facilities to customers.
ASIC said ANZ breached its obligation to make reasonable inquiries about the credit limit a customer required.
6. ACCOUNT ADMINISTRATION
* ANZ ACCOUNT ADMINISTRATION ERRORS
ANZ refunded $5 million to 25,000 customers in 2016 after it failed to properly apply some fee reductions and waivers for basic account holders who also had an ANZ credit or visa debit card.
ASIC said the failures arose as a result of breakdowns in the interaction between automated and manual processes and the bank had implemented an automated waiver system.
* CBA UNSUITABLE OVERDRAFT FACILITIES AND FAILURE OF AUTOMATED SYSTEMS
CBApaid $180,000 in penalties and wrote off $2.5 million in personal loan overdraft balances for 11,000 customers in 2016.
The bank identified a programming error that meant it did not consider all expense information when assessing serviceability in personal overdraft applications.