It is almost five years since the final report of the Hayne royal commission detailed the full extent of bank misconduct, but you wouldn’t know that much time had passed from recent headlines detailing banks charging for services not provided, giving misleading account details, knowingly overcharging and failing to respond to customer requests for assistance.
What has changed since Hayne is that the misconduct is less likely to be the result of venal management, and more the result of system errors that can’t be fixed easily. But intractable system failures are just as big a concern as profiteering because the impact on customers is the same.
Here are some of those headlines:
Deceased estates. In June, the Banking Code Compliance Committee reported that an inquiry into banks’ handling of deceased estates found widespread charging of fees for services no longer provided on deceased customers’ accounts.
The BCCC said all six banks it reviewed continued to apply inappropriate fees and charges to accounts of deceased customers, despite being notified of their deaths. It said “a lack of clear definitions of fees in training and guidance materials proved a critical shortcoming for most banks in the overall management of deceased estates”.
Misleading customer account details. In September, The Federal Court ruled that ANZ breached the ASIC Act and the National Consumer Credit Protection Act when it falsely indicated that customers using credit card accounts could obtain a cash advance from funds it said were available, without incurring fees and interest.
It turned out that ANZ had not cleared deposits into the credit card accounts and customers who obtained a cash advance based on the bank’s statement of available funds were charged fees and interest.
Most of the breaches occurred between 2016 and 2018 but some continued until 2021. In addition to the fine, the bank has made remediation payments of more than A$8.3 million.
Overcharging. In September, the Federal Court ordered NAB to pay a fine of $2.1 million for unconscionable conduct, after finding it charged customers periodic payment fees when it knew it was overcharging.
NAB’s terms and conditions said the bank would charge for periodic payments to other accounts within NAB and for periodic payments to accounts at another bank. There were exemptions for certain payments, such as payments to home loan and personal loan accounts, and payments to certain savings accounts. NAB charged the fees in cases where it should have applied the exemption and in other cases it applied fees that were higher than the amounts set out in its terms and conditions.
The unconscionable conduct took place between January 2017 and July 2018. The bank stopped charging all periodic payment fees in February 2019.
Failing to respond. In September, ASIC commenced civil penalty proceedings against Westpac for failing to respond to customers’ hardship notices within the time required by law. The incidents occurred between 2015 and 2022.
ASIC said some customers were subject to debt collection activities while waiting for the bank to respond to their notices. The bank sold customer accounts to debt collectors, while the hardship requests were in progress.
On other occasions the bank declined hardship notices on the basis that the customers had not provided sufficient information to assess their requests, in circumstances where the customers’ online hardship notices, as affected by system failure, had provided sufficient information.
In other cases, the bank recorded adverse repayment history information on customers’ credit files, while their hardship requests were being processed. The bank acknowledged these failings, putting it down to technology error.
Failing Indigenous communities. In July, ASIC published a review that found many Indigenous consumers are using high-fee accounts despite being eligible for lower cost services. The regulator found that banks were aware of “high numbers” of customers eligible for low-fee accounts but in the majority of cases their processes for transferring these customers to low-fee accounts were ineffective.
The regulator collected data on banking fees charged to consumers in locations with higher-than-average proportions of Indigenous people, as well as fees paid by customers in receipt of AbStudy payments. It identified more than 110,000 consumers who paid more than $6 million in fees over a 12-month period.
Guarantees. In a 2021 review, the Banking Code Compliance Committee found that all audited banks had control gaps in their guarantee processes, that banks were failing to provide full disclosure of key information to guarantors, compliance monitoring was inadequate and that banks were overly legalistic in their dealings with non-compliant guarantors.
In August the BCCC published the results of a follow-up review, reporting that there had been considerable improvement but there needed to be further progress, including extending monitoring and control of guarantee processes to third parties, such as solicitors and brokers.
Guarantees, which support around 10 per cent of bank loans, have long been controversial, with consumer groups and community legal centres frequently highlighting their link to financial abuse. Evidence at the Hayne royal commission revealed unethical behaviour by banks towards guarantors.
The common denominator in these failures is system error. Westpac acknowledged that a system error was the cause of its failure to respond to customers’ hardship notices within the time required.
ASIC went further, saying Westpac failed to maintain adequate systems and processes to receive and assess hardship notices, and that it did not do enough to investigate and rectify the systems issues affecting its online hardship notification process.
And it said the bank’s system for handling online hardship requests was still deficient – the result of having to deal with multiple legacy technology and underinvestment in technology infrastructure.
In the NAB overcharging case, the court found the cause of its wrongdoing was its inability to manage its computer systems and its unwillingness to apply sufficient resources to fix the problem in a timely manner.
The court slammed NAB for “moral dereliction” and a “sense of entitlement” because it allowed the overcharging to continue while it searched for a solution to the system problem “without any great diligence”.
The court also said the maximum penalty of $2.1 million was “woefully insufficient” in the circumstances.
The Australian Financial Complaints Authority reported that it investigated 30 systemic issues in banking and finance during the six months to June. These included delays in acting on instructions, inappropriate debt collection practices, errors in credit reports and errors in the calculation of minimum loan repayments. Banks figured more prominently in systemic issue investigations than any other sector.
AFCA has said that inadequate testing, monitoring and control of processes and system changes are at the heart of many of these failings. It said it often sees inadequate testing before system changes are implemented and little ongoing monitoring when changes are made.
With regard to the deceased estate issue, the BCCC’s chief executive Prue Monument said: “Several years ago now, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry showed that banks had a lot of work to do. It is reasonable for the community to have expected more progress and seen improvements sooner.”
Amen to that.