Customers are falling victim to the misconduct of banks with evidence being presented at the Banking Royal Commission (BRC) of fraudulent conduct, approval of inappropriate loans and excessive interest rates. The first round of public hearings have finished with the big four banks (NAB, Westpac, ANZ and CBA) being scrutinised by the Commission over its inappropriate behaviour.
The big banks get hammered in first round of BRC hearings
NAB’s employee incentive scheme saw fraudulent conduct by its bankers making unsuitable loans, the dishonest use of customer signatures, and false documentation being provided to support loan applications. Even worse, staff in some branches accepted bribes to facilitate loans they knew were based on fraudulent documents. Whistleblowers called out the fraud, but the bank did not notify the regulator until months after they were required to.
The Commonwealth Bank of Australia has also been criticised for its brokers fees and commissions for home loans and associated CBA insurance products that customers purchased. Brokers failed to clearly disclose upfront, on-going fees and incentives to stop people paying off their mortgages sooner. CBA was also under fire after they admitted to waiting two years before reporting a problem with their personal loan insurance program that affected over 20,000 customers.
ANZ have also been scrutinised with the bank failing to check customers’ expenses before approving them for a home loan. Their car finance business, Esanda, was also found to have been undertaking dodgy practices before it was sold in October 2015. This included the inappropriate use of customer’s financial information and increasing interest rates for better commissions.
It was found that Westpac also had its own dodgy practices. Similar to the other banks, the commissions attached to Westpac employees’ approval of car loans has caused issues of inappropriate loans being made. It has also been found that the bank increased credit card limits without checking customer’s current employment status.
Systemic change required in the banking industry
It is clear that there is a lack of accountability mechanisms and internal controls to manage potential conflicts of interest and the detection of fraud within banks. Commission based incentive programs have resulted in the approval of inappropriate loans and fraudulent conduct. Customers are falling victim to greedy banks with higher interest rates and the misuse of their personal information. It is only now that the banks have been caught out that they are apologetic and pledging to change their practices. It is unacceptable that this has been occurring on a consistent basis throughout all banks, and requires a systemic change to be made in the banking industry.
The findings during the Banking Royal Commission’s first hearing indicate two key things. Firstly, commissions and employee incentives are a key contributor to misconduct. This needs to be regulated in some way. Customers should enquire about commissions and any associated fees before purchasing any banking services. Secondly, the industry regulator ASIC needs to implement proactive measures to monitor the practices of financial institutions. Many of the reported cases of misconduct were only made aware to the regulator years after, or even swept completely under the rug. They need to be prevented from occurring in the first place.
Next up on the Banking Royal Commission agenda is the financial planning and wealth management industry which will be investigated in the second round of public hearings that will commence in mid-April.
If you will be appearing before the Banking Royal Commission and require representation, contact us on (02) 9261 4281.