The customer relations crisis now engulfing Members Equity Bank is exposing much more than a breakdown in communication with home borrowers – it is also opening a window to a crude and inadequate approach to risk management.
While the bank acknowledges that it failed to properly give customers notice that their capacity to redraw on their home loans would reduce from 27 April, it is sticking by its rhetorical defence that it was done “with the best intentions”.
The evidence suggests otherwise in cases involving borrowers who were the most advanced on their loan repayments.
Many of the borrowers who had their redraw entitlements crunched by ME are years ahead on their repayments and sit on loan-to-value ratios under 30 per cent.
Banking Day has spoken with borrowers in these circumstances, who each point out that they are not even halfway through their 30 year loan terms.
In other words they are solid credit risks, whose repayment records rank them among the least likely to default across ME’s home borrower base.
The bank has not given a convincing explanation of how curtailing the redraw rights of borrowers in such circumstances was necessary and in their best interests.
ME’s problem is that it has imposed a “one size fits all” solution on a repayment problem that does not exist for thousands of its borrowers.
The crisis that has beset ME is not really an issue of poor communication, it’s more about flawed risk management and a preoccupation with a product-based approach to assessing the likelihood of borrower default.
It reflects a credit culture that is unable to discern variation in the risk profiles of different borrowers.
It might also demonstrate that some of its mortgage products are poorly designed, with the legacy Super Members Home Loan apparently offering no option for borrowers to migrate funds from redraw facilities to an offset account.
That should be of some concern to the Australian Prudential Regulation Authority, which confirmed to the ABC’s Peter Ryan on Tuesday that it was seeking more information from the bank about the redraw changes.
Throughout this week-long saga nothing has been heard from the bank’s senior management including the chief executive, Jamie McPhee.
Given the flood of customer complaints received by the Australian Financial Complaints Authority it is time for McPhee to finally step up to the plate of accountability and answer questions that his spokespeople refuse to answer.
Basic questions like how many customers are affected by the redraw changes.
If McPhee is unable to make himself publicly accountable for this reputation-sapping botch-up then the bank’s chairman Jim Evans should intervene.
It is remarkable that neither has done so already, while customer service staff such as the diligent “Annabelle” have spent the last week apologising to hundreds of aggrieved customers on social media.
ME is proving again that the banking industry is adept at employing leaders who go missing during a customer backlash.