ICYMI - Banking Royal Commission first round of public hearings wraps up
And breath, Australia. It has been just two weeks but the Banking Royal Commission’s first round of public hearings have served up a slew of horror stories involving some of Australia’s biggest banks.
With so many huge stories hitting our headlines on a daily basis, we don’t blame you for being a little bit out of the loop so here are the biggest highlights from the Royal Commission’s first two weeks.
Home loan lending
Australian home loan lending is arguably the biggest item on the Royal Commission’s agenda, with a couple of our largest banks and brokerage services coming under Commissioner Kenneth Hayne’s spotlight over the opening fortnight.
One of the early breakout stories to come from the proceedings involved a syndicate of NAB staff members across a series of Western Sydney branches who took $2,800 in bribes for fraudulent home loans during 2015. As if that wasn’t bad enough, the lender failed to notify regulatory body, ASIC within the recommended 10 day period after discovering the scheme and sacking those involved.
“It [NAB] knew enough by November to sack people for those reasons. Are you telling me it didn’t know enough to tell ASIC that there was a problem?,” Hayne questioned of a senior NAB executive.
NAB wasn’t the only big bank who had its lending practices questioned during the first round of hearings, with the Commonwealth Bank’s mortgage commission arrangements coming under scrutiny as well. The current commission structure means that brokers are rewarded (monetarily) for settling larger loans and for keeping them going over a longer period of time, which might mean you’re not paying your home loan off as quickly as you can or are entering into larger loans than necessary.
Despite acknowledging this as a problem, the lender opted not to change practices saying it would put them at a competitive disadvantage.
And finally, ANZ was another of the big four to have its mortgage lending applications scrutinised during the Royal Commission’s first round of hearings. Despite boasting a staggering $265 billion home loan portfolio, the big bank currently only runs checks on a customer’s income, not their expenses, before approving them for a home loan, saying it is too expensive and complicated to do so.
Car dealership issued loans have also been dragged through the mud over the past two weeks.
Particularly, Westpac’s lending guidelines were questioned after the Commission heard of an ill-approved Bank of Melbourne car loan to a mother of two, relying on Centrelink benefits to get by. Westpac’s General Manager of Specialist Finance, Phillip Godkin agreed that the loan should not have been approved and said the real fault is with the “flex commissions” these dealerships are rewarded with for issuing car loans.
“Is it right to say that one of the concerns about flex commissions is that the interest rate charged to the consumer is not related to their credit rating or risk of default but to what they can negotiate with the dealer?," Godkin was asked during proceedings.
“That’s fair,” he said.
This isn’t a problem just for Westpac, however. The Royal Commission heard of some seriously dodgy practices employed by ANZ’s car finance business, Esanda before it was sold in October 2015. These included swapping a customer’s financial information with that of a guarantor to approve loans and pumping up interest rates for better commissions.
After being severely grilled in the media, ANZ last week announced that it would stop issuing car loans for the time being, but existing customers would not be affected.
“We need to assess if it is better for our customers, shareholders and employees if we focus our investment on areas of our business that are core to what we do," ANZ’s Retail Distribution Managing Director, Catriona Noble explained in a statement.
Problems in personal loans
And it isn’t just Australian car loans that are fraught with danger for Aussie consumers, after Commonwealth Bank admitted waiting two years to report a problem with its personal loan insurance protection that affected in excess of 20,000 customers.
The issue also extended to credit card customers who were sold insurance policies they wouldn’t actually be able to make a claim on.
“We have found it hard to achieve the right balance between simplicity and accessibility on the one hand, and limiting the product to the right group of target customers on the other hand,” Commonwealth Bank Senior Executive, Matt Comyn said.
After finally admitting its errors, Commonwealth Bank announced it would refund customers to the tune of $16 million.
Credit card limit increases
One of the biggest lending practices to go under the microscope, credit card limit increases were a key focus in the first round of Royal Commission hearings and were headlined by news that Commonwealth Bank had not only issued a $25,100 card limit increase to a problem gambler, but in fact, encouraged it.
Even after the cardholder called to request a change of address on his account and that he stop being offered additional increases, the lender continued to send through offers which were eventually taken up.
“We've acknowledged that we should not have provided that final credit limit offer," Commonwealth’s Executive General Manager of Retail Products, Clive van Horen told the Commission.
“That information [the gambling problem] was not in any way passed through to credit decisioning systems and that's a failing, and we acknowledge that and we've got to find ways to address that."
In spite of all this, ASIC reported that Westpac were the bank most resistant to regulations surrounding these increases, ignoring requirements to check a customer’s current employment status before giving a credit card limit increase the tick of approval.
“To their [ASIC] surprise they discovered that Westpac was not even doing the bare minimum. That is, it was not asking customers any questions before increasing their credit card limit,” Westpac Credit Card Chief, William David Malcolm said during proceedings.
The second round of public hearings - expected to focus on the financial planning and wealth management industry - is scheduled to commence on the 16th of April but if the Banking Royal Commission has you thinking twice about your current credit card provider, you can check out a range of alternative products using our credit card comparison tables.