Multilevel vigilance needed to ensure financial integrity

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Suzanne Snively

Suzanne Snively

Wellington, October 8, 2021

There is also a greater need for protection of banks’ customers

                                                                                                                       Image Credit: Newshub New Zealand

 

A multi-million dollar class-action lawsuit has been launched against the ANZ and ASB banks. The allegation is that they failed to fully compensate around 150,000 customers for over-paid fees and interest on personal and home loans.

The alleged additional millions are based on the alleged lack of transparency around previous settlements between the two banks and the Commerce Commission, and the potential unfairness that this caused.

Question of integrity and behaviour

This case raises questions of integrity around bank behaviour as well as about the treatment of the customers in the overall regulatory system.

Earlier this year, in response to the Commerce Commission’s findings, the ASB agreed to pay a settlement of $8.1 million to 73,000 customers. This was because it was unable to confirm that it had sent out written disclosure information to those who had made a loan variance over the period between June 2015 and June 2019.

Last year, the ANZ paid out $6 million to around 100,000 customers, admitting that it has failed to take the necessary care required of a responsible lender. This year, it paid out a further $29.4 million after it confirmed it had misstated the amount of interest on loans between 30 May 2015 and 29 May 2016 due to the loan calculator coding error.

Another class action

Despite receiving these payments, a group of bank customers have filed a class-action case alleging that the banks have only paid out part of the amount that they are entitled to, and two law firms are taking the case on behalf of all relevant customers, on an opt-out basis.

It would be beyond the resources of individual customers to take separate cases.

Former Commerce Commission lawyer and leader of the class-action case, Scott Russell, is alleging that customers have only received a fraction of what they were entitled to.

He told the media, “The communications that the banks sent to customers advising them of remediation payments were extremely vague and actively dissuaded customers from querying the payments or taking further action, using words like ‘there is nothing further you need to do.’”

Key questions raised by the Commerce Commission findings and by the class action are (a)  Were banks able to profit from non-compliance by settling for less than they actually owed customers – is this legally fair? (b) What level of transparency have the banks applied in their process and communications with customers around inaccurate calculations or overcharging? (c) What means do customers have to check and pick up inaccuracies in formulas on loan variations? (d) What were the causes for improper disclosures and incorrect coding? (e) How can customers be sure that this won’t happen again?

Trust Us, we know what we are doing

This year, New Zealand banks are expected to record, according to figures from KPMG’s annual Financial Institutions Performance Survey (FIPS), their highest ever annual net profit after tax of over $6 billion. At the same time, the recent Consumer New Zealand Survey showed that only 32% of Kiwis strongly agree that banks are trustworthy with nearly half having no trust or not much.

It is not just the ASB and ANZ who have been in breach of the law.

In 2020 Kiwibank, BNZ and Westpac have also declared breaches of responsible lending practices and received a warning from or settled with the Commerce Commission.

There is an urgent need for (a) Legal clarity about regulatory settlements that could result in customers receiving less than they are entitled to (b) Much improved transparency, competency and communications. We don’t want to see banks treating regulatory findings and court cases as just the cost of doing business (c) Customers to be provided with full understanding of the details of the breach as it relates to them and the remedies they have for checking and review; Significant improvement in competency and review round disclosure and formulas, to reduce the likelihood of overcharging. 

Benefits of Financial Integrity

Questions about this case highlight the many dimensions of a financial integrity system.

Vigilance is required at many levels. Public sector oversight agencies such as the Commerce Commission require more than a simple mandate to carry out their role. They need resources to be effective and this includes staff with the capacity and capability to collect sufficient evidence to define the details of settlements.

When financial organisations integrate their customer-facing services with strong internal integrity systems, they are better placed to ensure that they are meeting the requirements of responsible lenders.

Transparency International New Zealand’s Financial Integrity Systems Assessment is designed to generate a national discussion about the conduct and culture of financial organisations.

With two of our biggest banks found to be lacking, the time is now for the FISA Online Self-Assessment to be rolled out. This will provide a starting point for conversations inside financial organisations about areas to prioritise to improve their integrity. The report of the aggregated FISA results is an opportunity to deepen the national discussion of what financial integrity means to all New Zealanders.

‍Suzanne Snively is Project Director, Financial Integrity System Assessment. She was previously Chief Executive of Transparency International New Zealand based in Wellington. The above article appeared in ‘Transparency Times’ October 2021 Edition of Transparency International New Zealand.

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