In a fresh blow to Westpac, the Federal Court this morning delivered the corporate regulator a win in its appeal against a previous ruling on Westpac’s telephone campaigns. Via Financial Standard.
The full court this morning
said ASIC’s appeal will be allowed with costs, while Westpac-related
companies’ cross-appeal will be dismissed.
In 2014 and 2015, Westpac ran telephone and snail-mail campaigns to encourage customers to roll over external superannuation accounts into their existing accounts with Westpac Securities Administration Limited and BT Funds Management.
ASIC was primarily concerned with the telephone calls.
The
corporate regulator claimed that the two Westpac companies had breached
their FoFA-stipulated best interest duty by advising rollovers to
Westpac-related super funds without a proper comparison of options, as
required by law.
And so, it initially launched civil penalty proceedings against the two Westpac subsidiaries in December, 2016.
The
Federal Court handed down its judgment in January this year, with a
mixed outcome. It decided that ASIC had failed to demonstrate that the
two Westpac companies had provided personal financial product advice to
15 customers in regards to the consolidation of superannuation accounts.
However,
the judge added the Westpac subsidiaries contravened the Corporations
Act in 14 of 15 customer phone calls by implying the rollover of super
funds into a BT account was recommended. This came about through a
“quality monitoring framework” where BT staff were coached in sales
technique.
ASIC appealed the January judgment. Westpac also made a counter appeal.
There have been some interesting developments in the short-term lending market in the UK recently. The Financial Conduct Authority in the UK recently published data on the so called high-cost short-term credit (HCSTC) market. HCSTC loans are unsecured loans with an annual percentage interest rate (APR) of 100% or more and where the credit is due to be repaid, or substantially repaid, within 12 months. In January 2015, The FCA introduced rules capping charges for HCSTC loans.
Just over 5.4 million loans originated in the year to 30
June 2018, and that lending volumes have been on an upward trend over the last
2 years. Despite some recovery, current lending volumes remain well down on the
previous peak for this market. Lending volumes in 2013, before FCA regulation,
were estimated at around 10 million per year.
These data reflect the aggregate number of loans made in a
period but not the number of borrowers, as a borrower may take out more than
one loan. They estimate that for the year to 30 June 2018 there were around 1.7
million borrowers (taking out 5.4 million loans).
The market is concentrated with 10 firms accounting for
around 85% of new loans. Many of the remaining firms carry out a small amount
of business – two thirds of the firms reported making fewer than 1,000 loans
each in Q2 2018.
For the year to 30 June 2018, the total value of loans
originated was just under £1.3 billion and the total amount payable was £2.1
billion. Figure 2 shows that the Q2 2018 loan value and amount payable mirrored
the jump in the volume of loans with loan value up by 12% and amount payable
13% on Q1 2018.
The average loan value in the year to 30 June 2018 was £250.
The average amount payable was £413 which is 1.65 times the average amount
borrowed. This ratio has been fairly stable over the past 2 years. A price cap
introduced in 2015 stipulates that the amount repaid by the borrower (including
all charges) should not exceed twice the amount borrowed.
Over the past 2 years the average Annual Percentage Rate (APR) charged for HCSTC has been consistent, hovering around 1,250% (mean value). The median APR value is slightly higher at around 1,300%. Within this there will be variations of APR depending on the features of the loan. For example, the loans repayable by installments over a longer period may typically have lower APRs than single installment payday loans.
In the UK, the North West has the largest number of loans
originated per 1,000 adult population (125 loans), followed by the North East
(118 loans). In contrast, Northern Ireland has the lowest (74 loans).
Borrowers between 25 to 34 years old holding HCSTC loans (33.4%) were particularly over-represented compared to the UK adults within that age range (17.5%). Similarly, borrowers over 55 years old were significantly less likely to have HCSTC loans (12.2%) compared to the UK population within that age group (34.8%). The survey also found that 60% of payday loan borrowers and 45% for short-term installment loans were female, compared with 51% of the UK population being female.
61% of consumers with a payday loan and 41% of borrowers with a short-term installment loan have low confidence in managing their money, compared with 24% of all UK adults. In addition, 56% of consumers with a payday loan and 48% of borrowers with a short-term installment loan rated themselves as having low levels of knowledge about financial matters. These compare with 46% of all UK adults reporting similar levels of knowledge about financial matters.
But now the top PayDay lenders are out of business. In August 2018, Wonga, once the biggest payday lender in the UK collapsed and now administrators for the lender have revealed that 389,621 eligible claims have been made since Wonga’s demise. Despite being vilified for its high-cost, short-term loans, seen as targeting the vulnerable, it became a household name and was enormously successful until stricter regulation curtailed its, and other payday loan companies’, lending.
It collapsed in the UK following a surge in compensation
claims from claims management companies acting on behalf of people who felt
they should never have been given these loans. So far, the compensation bill is
£460m, with the average claim £1,181.
Another lender, The Money shop closed earlier this year.
Now QuickQuid, UK’s largest payday lending firm is to close with thousands of complaints about its lending still unresolved. QuickQuid’s owner, US-based Enova, says it will leave the UK market “due to regulatory uncertainty”.
QuickQuid is one of the brand names of CashEuroNet UK, which
also runs On Stride – a provider of longer-term, larger loans and previously
known as Pounds to Pocket. The UK’s Financial Ombudsman Service said that it
had received 3,165 cases against CashEuroNet in the first half of the year. It
was the second most-complained about company in the banking and credit sector
during that six months.
Back in 2015, CashEuroNet UK LLC, trading as QuickQuid and
Pounds to Pocket, agreed to redress almost 4,000 customers to the tune of £1.7m
after the regulator raised concerns about the firm’s lending criteria.
More than 2,500 customers had their existing loan balance
written off and more almost 460 also received a cash refund. (The regulator had
said at the time that the firm had also made changes to its lending criteria.)
“Over the past several months, we worked with our UK
regulator to agree upon a sustainable solution to the elevated complaints to
the UK Financial Ombudsman, which would enable us to continue providing access
to credit,” said Enova boss David Fisher.
“While we are disappointed that we could not ultimately
find a path forward, the decision to exit the UK market is the right one for
Enova and our shareholders.”
So this could be the twilight of the PayDay industry in the
UK, as better education, and other lending options, plus tighter regulation
bite.
Given the pressures on households here, we are concerned that
more will reach for short term loans to tide them over, despite the high costs
and risks from repeat borrowing, all made easier still via the proliferation of
online portals. The debt burden on households is high and rising.
APRA is proposing to adjust its capital requirements for authorised deposit-taking institutions (ADIs) to support the Government’s First Home Loan Deposit Scheme (FHLDS). The scheme aims to improve home ownership by first home buyers, through a Government guarantee of eligible mortgage loans for up to 15 per cent of the property purchase price.
Recognising that the Government guarantee is a valuable form of credit risk mitigation, APRA is proposing to reflect this in the capital framework by applying a lower capital requirement to eligible FHLDS loans.
APRA intends to give effect to this lower capital requirement by adjusting the mortgage capital requirements set out in Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112).
Specifically, recognising both the minimum 5 per cent deposit required of borrowers and the Government guarantee of 15 per cent of the property purchase price, APRA proposes to allow ADIs to treat eligible FHLDS loans in a comparable manner to mortgages with a loan-to-valuation ratio of 80 per cent.
This would allow eligible FHLDS loans to be risk-weighted at 35 per cent under APRA’s current capital requirements. Once the Government guarantee ceases to apply to eligible loans, (this could be because the borrower pays down the loan to below 80 per cent of the property purchase price, refinances or uses the property for a purpose that is not within the scope of the guarantee.) ADIs would revert to applying the relevant risk weights as set out in APS 112.
APRA invites feedback on this proposal, which will be subject to a
two-week public consultation. APRA intends to release its response,
including additional information on implementation for participating
ADIs, as soon as practicable after the consultation period.
Written submissions on the proposal should be sent to ADIpolicy@apra.gov.au by 11 November 2019
ASIC has imposed additional licence conditions on the Australian
financial services (AFS) licence of IOOF Investment Services Ltd (IISL)
as part of an application by IISL to vary its licence.
IISL sought a variation to its licence to facilitate the transfer of
managed investment scheme, investor directed portfolio services (IDPS)
and advice activities from IOOF Investment Management Ltd (IIML) to
IISL. The transfer is part of a reorganisation of the broader corporate
group (IOOF Group).
In granting the licence variation, ASIC has decided to impose
additional conditions relating to the governance, structure and
compliance arrangements of IISL.
ASIC’s decision to impose additional licence conditions took into
account concerns highlighted by the Financial Services Royal Commission
about the real and continuing possibility of conflicts of interests in
IOOF Group’s business structure, ASIC’s past supervisory experience of
these entities and material supplied by IISL as part of its licence
variation application. IISL agreed to the imposition of the additional
licence conditions.
In summary, the additional conditions specifically cover:
governance – by requiring that IISL has a majority of
independent directors with a breadth of skills and background relevant
to the operation of managed investment schemes and IDPS platforms;
the establishment of an Office of the Responsible Entity (ORE) – that is adequately resourced and reports directly to the IISL board, with responsibility for:
oversight of IISL’s compliance with its AFS licence obligations;
ensuring IISL’s managed investment schemes are operated in the best interests of their members; and
overseeing the quality and pricing of services provided to IISL by all service providers (including related companies),
the appointment of an independent expert, approved by ASIC, to report on their assessment of the implementation of the additional licence conditions.
ASIC Commissioner Danielle Press said, ‘ASIC is serious about
improving the quality of governance and conflicts management across the
funds management sector and ensuring that investors’ best interests are
the highest priority of fund managers.
‘ASIC will use its licensing power, including through the imposition
of tailored licence conditions to address governance weaknesses, the
risk of poor conduct or vulnerabilities to conflicts of interest in a
licensee’s business model.’
Former Liberal Party leader John Hewson has questioned the management of superannuation funds and called out Australia’s sovereign wealth fund for ignoring climate risks. Via InvestorDaily.
Speaking
on a panel at the Crescent Think Tank in Sydney on Thursday (24
October), Mr Hewson noted that most of the $2.9 trillion of
superannuation money is invested in stock markets, primarily in the US
and Australia.
“You are heavily exposed when those markets are as overvalued as they are. By any measure the US stock market is way overvalued. There is going to be a correction. It’s just a matter of when and how far. Super funds are taking a risk by staying in those markets,” the former Liberal Party leader said.
“Some
have rebalanced portfolios and put a bit more into cash, but you don’t
earn anything on cash. Fixed-interest gives you a very low return.”
Mr
Hewson noted the low interest rate environment globally, highlighting
that around 25 per cent of sovereign bonds have negative rates.
“These
are uncharted waters for those in the financial sector. Everyone is
chasing yield but the only place you get a return is a stock market. The
big question is how sustainable is that return? You can see how
volatile equities markets are just based on a tweet from Trump. This is
a very volatile and dangerous world for superannuation funds to be so
exposed,” he said.
Mr Hewson was one of the key figures behind
The Climate Institute’s Asset Owners Disclosure Project (AODP), which
has since been taken over by ShareAction. Over the years the AODP index
and report has repeatedly called out Australia’s sovereign wealth fund,
the Future Fund, for lagging behind its international peers on climate
change.
Last week Future Fund CEO David Neal stated that
Australia’s sovereign wealth fund does not invest for social concerns
and will continue to invest in fossil fuels.
“Our job is very
clear. Our job is to generate a financial return for the nation,” Mr
Neal told a committee in Canberra last week.
Commenting on the
Future Fund’s stance, Mr Hewson said: “This is a fund that was buying
British American Tobacco flat out when both sides of government were
running anti-smoking campaigns.”
“They are not interested in
climate risk. The fund is not transparent enough to satisfy a lot of
people. They are taking big risks,” he said.
The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.
Contents:
0:24 Introduction
0:58 US Markets
3:10 The Feds “Non-QE” QE
5:40 Brexit and UK Markets
6:50 Metro Bank
8:06 ECB
10:20 Australian Segment
10:30 Economic Data
12:30 Cash Transaction Ban
14:20 Property Sales and Prices
16:45 Foreign Buyers
18:45 WA First Time Buyer Incentives
19:40 Bank Profitability
20:30 Interest Only Lending
21:25 Local QE Is Coming
25:30 Local Market Summary
The House of Reps passed the Cash Ban Bill today, despite the matter being referred previously to a Senate Inquiry with submissions open to the 15th November 2019. Robbie Barwick from the CEC and I discuss the implications.
There is still time to make a submission, and stop this from becoming law. Our civil liberties depend on it.
