Tag: ASIC

ANZ sued for unconscionable conduct

ASIC has commenced proceedings in the Federal Court against ANZ over allegations relating to charging of fees for periodical payments. Via InvestorDaily.

ASIC advised ANZ earlier in the day that it would commence proceedings in relation to the charging of fees for periodical payments in certain circumstances prior to February 2016. 

The commission is alleging that ANZ was not entitled to charge certain fees under the bank’s contracts with its customers. 

These fees were the subject of a class action which were settled out of court for $1.5 million, pending court approval. 

ASIC said that ANZ’s contract terms and conditions defined a periodical payment as a debit from an ANZ account which the customer instructed ANZ to make to the account of another person or business. 

The definition of the payment excluded payments between two accounts in the name of the same or business, but ASIC alleges that between 2003 and 2016 ANZ charged fees for payments between same name accounts. 

Transaction fees were charged when a periodical payment was successful and non-payment fees were charged when the payment was not. 

For businesses these transaction fees were between $1.70 and $4 and non-payment fees were between $35 and $45 while for individuals they were $4 and between $6 and $45 respectively. 

These fees were charged on at least 1.3 million occasions alleges ASIC and the commission contends that the bank first became aware of the risk in July 2011. 

Despite this ASIC will say in court that ANZ did not provide written notification of the issue’s existence until 2014, did not commence notifying customers until September 2015 and did not change its terms and conditions until February 2016. 

ANZ first reported the matter to ASIC in February 2014 and in September 2018 the bank contacted ASIC advising that information previously provided was incomplete. 

As a result, ASIC commenced an investigation in October 2018 which has since concluded leading to the court case. 

ASIC is alleging a breach of both the Corporations Act and the ASIC Act for the bank’s failure to ensure that financial services are provided efficiently honestly and fairly and for engaging in misleading or deceptive conduct. 

It alleges this was because the bank continued to charge the fees even when it became aware that the fees were potentially unlawful and highly unlikely that it could remediate all affected customers. 

The ASIC act contraventions attract a maximum penalty of between $1.7 million and $2.1 million per contravention. 

Background

ANZ has already begun to pay out customers that were affected by this issue after settling out of court a class action brought about by Maurice Blackburn. 

The class action launched by Maurice Blackburn in 2010 was against various fees charged by banks but ultimately was lost by the law firm in 2016. 

However, ANZ was ordered in one part of the Federal Court trial to repay customer’s fees in relation to periodical payments.

The types of fees were on the smaller side and paid by customers when a pre-arrange payment between its own accounts was not made due to insufficient funds or for automated transactions between accounts. 

The bank stopped charging the fees in February 2016 and ANZ confirmed it had set aside $50 million in customer remediation payments for this matter of which more than $28 million has already been paid to customers impacted.

The Council Of Financial Regulators Speaks

The Council just updated their charter, and published their latest minutes. At least there is some minimal disclosure now, though high-level. Note the fact that Treasury is one of the members, alongside the RBA, ASIC and APRA.

The Council of Financial Regulators (the Council) is the coordinating body for Australia’s main financial regulatory agencies. There are four members: the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC), the Australian Treasury and the Reserve Bank of Australia (RBA). The Reserve Bank Governor chairs the Council and the RBA provides secretariat support. It is a non-statutory body, without regulatory or policy decision-making powers. Those powers reside with its members. The Council’s objectives are to promote stability of the Australian financial system and support effective and efficient regulation by Australia’s financial regulatory agencies. In doing so, the Council recognises the benefits of a competitive, efficient and fair financial system. The Council operates as a forum for cooperation and coordination among member agencies. It meets each quarter, or more often if required.

The updates charter says:

The Council of Financial Regulators (CFR) comprises APRA, ASIC, the RBA and Treasury. It aims to facilitate cooperation and collaboration between member agencies, with the ultimate objectives of promoting stability of the Australian financial system and supporting effective and efficient regulation by Australia’s financial regulatory agencies. In doing so, the CFR recognises the benefits of a competitive, efficient and fair financial system.

The CFR provides a forum for:

  • identifying important issues and trends in the financial system, with a focus on those that may impinge upon overall financial stability;
  • exchanging information and views on financial regulation and assisting with coordination where members’ responsibilities overlap;
  • harmonising regulatory and reporting requirements, paying close attention to regulatory costs;
  • ensuring appropriate coordination among the agencies in planning for and responding to instances of financial instability; and
  • coordinating engagement with the work of international institutions, forums and regulators as it relates to financial system stability.

The CFR will draw on the expertise of other non-member government agencies where appropriate for its agenda, and will meet jointly with the ACCC, AUSTRAC and the ATO at least annually to discuss broader financial sector policy.

Their latest minutes:

At its meeting on 5 July 2019, the Council of Financial Regulators (the Council) discussed systemic risks facing the Australian financial system, regulatory issues and developments relevant to its members. The main topics discussed included the following:

  • Financing conditions and the housing market. The Council discussed credit conditions and ongoing adjustment in the housing market. Housing credit growth has stabilised at a relatively low level, with lending to investors remaining weak, particularly from the major banks. Demand for housing credit has been subdued, though there has also been some tightening in credit supply. Business credit growth has weakened recently, with lending to small businesses declining over the past year. Lenders are themselves applying stricter verification of expenses and income to small businesses, and lending may be affected by declining collateral values as housing prices decline.
  • Council members discussed the signs of stabilisation in the Sydney and Melbourne housing markets, evident in both housing prices and auction clearance rates. They observed that the adjustment over the past two years has been sizeable and conditions in most other capital cities continue to be soft. Risks to lenders from housing price falls have to date been limited by the strength of the labour market, low interest rates and the improvement in lending standards in recent years. Housing loan arrears have continued to edge higher, but with significant variation between regions.
  • Members were updated on ASIC’s public consultation on its responsible lending guidance. The responsible provision of credit is a cornerstone of consumer protection and is important to the Australian economy. It was noted that the consultation is not about increasing requirements; but rather, clarifying and updating guidance on existing requirements. For example, ASIC may further clarify areas where the law does not require responsible lending requirements to be applied (e.g. in small business lending). The Council agencies will continue to closely monitor developments in financing and the housing market.
  • ASIC’s product intervention powers. ASIC updated the Council on its proposed approach to the new product intervention power, legislation for which passed in April 2019. This gives ASIC the power to proactively intervene where a financial product has resulted or is likely to result in significant detriment to consumers. ASIC has launched a public consultation on its approach. Council members discussed possible applications of the new power given it is now available for use.
  • Product design and distribution obligations. The Council also discussed the implications of new product design and distribution obligations for retail holdings of bank-issued Additional Tier 1 (AT1) instruments. Members encouraged issuers to review their practices for issuing AT1 instruments ahead of the commencement of the new obligations in April 2021. They noted that APRA would continue to treat all AT1 instruments as regulatory capital, capable of absorbing losses in the unlikely event of a bank failure. Members discussed the importance that all holders of AT1 instruments, particularly retail investors, recognise that AT1 instruments could be written down or converted to equity.
  • Policy developments. Members discussed a number of policy developments, including the implementation of the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. APRA provided an update on its policy work, including changes to its guidance on the minimum interest rate used in serviceability assessments for residential mortgage lending (announced on the morning of the meeting). APRA also updated the Council on its planned increases in the loss-absorbing capacity of ADIs to support orderly resolution. Members discussed proposals by New Zealand authorities to significantly increase Tier 1 capital ratios for banks in New Zealand.
  • Financial market infrastructure (FMI). The Council’s FMI Steering Committee provided an update on the design of a crisis management legislative framework for clearing and settlement facilities. This will ensure the necessary powers to resolve a distressed domestic clearing and settlement facility. A second consultation is now planned for late 2019. The Committee has also considered proposals for enhancements to the agencies’ supervisory powers and other changes to improve the regulatory framework in relation to market infrastructures. The results of the Council’s consultation findings will be provided to Government, to assist with policy design and the drafting of associated legislation (the draft of which would also be consulted on before being introduced to Parliament).
  • Stored-value payment facilities. The Council discussed elements of a potential regulatory framework for payment providers that hold stored value, following a public consultation in 2018. Discussion focused on suitable criteria to determine the regulatory regime that should apply to providers of stored-value facilities, along with the adequacy of consumer protection arrangements. Once completed, the conclusions of this work will be provided to the Government for consideration.
  • Competition in the financial system. Council agencies and the Australian Competition and Consumer Commission (ACCC) are developing an online tool to improve the transparency of the mortgage interest rates paid on new loans. This follows a recommendation of the Productivity Commission’s inquiry into Competition in the Australian Financial System. The tool relies on a new data collection and is expected to be available in 2020.
  • Climate change. Council members noted the work undertaken by regulators to address the implications of the changing climate, and society’s response to those changes, for the Australian financial system.
  • Updated Charter. The Council agreed to adopt an updated Charter, which is being published today. The Charter emphasises the Council’s financial stability objective, while also recognising the benefits of a competitive, efficient and fair financial system. It also highlights the Council’s focus on cooperation and collaboration to support the activities of its member agencies.

In conjunction with the Council meeting, the Council agencies held their annual meeting with other Commonwealth regulators of the financial sector. This included representatives from the ACCC, the Australian Taxation Office and the Australian Transaction Reports and Analysis Centre (AUSTRAC). Topics discussed included enforcement and data initiatives affecting the financial sector.

Confidence Fades As APRA Caves Again… And Other Stories [Podcast]

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Confidence Fades As APRA Caves Again… And Other Stories [Podcast]



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Confidence Fades As APRA Caves Again… And Other Stories

A quick round-up of some of today’s news, including the latest falls in unit sales, APRA’s latest climb down, consumer and business confidence and ASIC move to curtail some of the excesses in the short term consumer credit market where people might pay 990%.

ASIC consults on proposal to intervene to stop consumer harm in short term credit

ASIC has released a consultation paper (CP 316) on the first proposed use of its new product intervention power. On this inaugural occasion, ASIC is looking to address significant consumer detriment in the short term credit industry.

Under their recommended Option 1: ASIC would use their product intervention power to:(a)make an industry-wide product intervention order by legislative instrument under s1023D(3) of the Corporations Act to prohibit credit providers and their associates from providing short term credit and collateral services except in accordance with a condition which limits the total fees that can be charged; and(b)if a new model, which seeks to circumvent the industry-wide product intervention order, evolves in response to the prohibition, amend the existing order or introduce a new order to address that model. 71

In ASIC’s view, Option 1 is preferable because:(a) the product intervention order will prevent the use of the short term lending model which is causing significant consumer detriment; (b) it will prevent other credit and collateral services providers from adopting this model; (c) it promotes protection for consumers who require small amount credit contracts but who are provided with short term credit (and services agreements) in reliance on the short term credit exemption; and (d) it is a more comprehensive and timely response than the other options.

The product intervention power allows ASIC to intervene where financial and credit products have resulted in or are likely to result in, significant consumer detriment. The new product intervention power is an important addition to ASIC’s regulatory toolkit. It reinforces ASIC’s ability to directly confront, and respond to, harms in the financial sector.

ASIC considers that significant consumer detriment may arise in relation to a particular model designed to provide short term credit at high cost to vulnerable consumers. These consumers include those on low incomes or in financial difficulty.

In its first proposed deployment of this power, ASIC is targeting a model involving a short term credit provider and its associate who charge fees under separate contracts. When combined, these fees can add up to around 990% of the loan amount.   

While ASIC is presently aware of two firms currently using this model – Cigno Pty Ltd and Gold-Silver Standard Finance Pty Ltd – the proposed product intervention order would apply to any firm using this type of business model.

Announcing the consultation ASIC Commissioner Sean Hughes said, ‘Sadly we have already seen too many examples of significant harm affecting particularly vulnerable members of our community through the use of this short term lending model. Consumers and their representatives have brought many instances of the impacts of this type of lending model to us. Given we only recently received this additional power, then it is both timely and vital that we consult on our use of this tool to protect consumers from significant harms which arise from this type of product.’

‘Before we exercise our powers, we must consult with affected and interested parties. This is an opportunity for us to receive comments and further information, including details of any other firms providing similar products, before we make a decision’.

ASIC seeks the public’s input on the proposed intervention order by 30 July 2019. Submissions should be sent to: product.regulation@asic.gov.au.

ASIC anticipates making a decision on whether to make a product intervention order in relation to short term credit during the course of August 2019.

All intervention orders subsequently made must be published on ASIC’s website, and a public notice issued in relation to the intervention.

Download

CP 316 and draft instrument 

Background

On 4 April 2019 ASIC published a media release welcoming the approval of new laws to protect financial service consumers (refer: 19-079MR).

ASIC also published a media release on 26 June 2019 confirming that it initiated consultation on the administration of its new product intervention power (refer: 19-157MR).

ASIC was unsuccessful in civil proceedings in the Federal Court in 2014 involving an earlier use of this short term lending model by two entities Teleloans Pty Ltd and Finance & Loans Direct Pty Ltd (refer: 15-165MR).

ASIC’s MoneySmart website has information about payday loans and alternatives and where to find free help with managing debt.

Associations call for ‘clarity’ on expense verification

The MFAA and the FBAA have called on ASIC to provide the mortgage industry with greater guidance surrounding expense verification, but have urged the regulator not to adopt a “prescriptive approach” to responsible lending, via The Adviser.

The Australian Securities and Investments Commission (ASIC) has published submissions from its first round of consultation regarding its proposal to update its responsible lending guidelines (RG 209).  

In February, ASIC stated that it considered it “timely” to review and update its guidance (in place since 2010) in light of its regulatory and enforcement work since 2011, changes in technology, and the release of the banking royal commission’s final report.

ASIC added that its review of RG 209 will consider whether the guidance “remains effective” and will seek to identify changes and additions to the guidance that “may help holders of an Australian credit licence to understand ASIC’s expectations for complying with the responsible lending obligations”.

In submissions to ASIC, the Mortgage & Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) called for greater clarification surrounding guidelines that relate to the verification of a borrower’s expenses (which was a key point of scrutiny during the royal commission).

The MFAA encouraged ASIC to provide “as much guidance as possible”, and lamented the lack of uniformity in the application of current guidelines.  

“An unfortunate side effect of these changes is that the requirements of individual lenders have changed from being reasonably consistent to being quite diverse,” the MFAA noted.

“This is causing significant cost, confusion and delay for consumers as well as for brokers.

“This is not a good consumer outcome because it has become very difficult for brokers to be familiar with the requirements of multiple lenders whose credit policies vary considerably.”

The industry association claimed that a disparity in the credit policies imposed by lenders may limit borrower choice by “resulting in brokers dealing with a smaller panel of lenders”.

“It is important that RG 209 provides as much guidance as possible, specifically dealing with the five most common finance types (home loans, residential investment loans, car loans, credit cards and personal loans – excluding small amount credit contracts) to assist consistency in consumer accessibility to these products while supporting the spread of credit access across the market through the enhanced clarity of regulatory expectation,” the MFAA added.

“We envisage that within each of these five loan types, RG 209 should specify ‘base’ inquiries and verifications because current industry standards are often quite similar across the product range.”

The FBAA agreed, calling for “some additional guidance to be provided around expense verification”, but has warned against a move to a more prescriptive approach to responsible lending.  

“Responsible lending is principles-based and intended to be flexible, adaptable and technology neutral,” the FBAA stated.

“There are genuine risks associated with guidance becoming too prescriptive. It would undermine the intentions of the responsible lending framework, stifle productivity and innovation and impede consumer access to regulated finance.”

Public hearing to be held in August

Last week, ASIC confirmed that it will host a new set of public hearings to further discuss its proposed changes to its responsible lending guidelines.

The corporate regulator has now confirmed that the hearings will take place in August and will be held in both Sydney and Melbourne.

ASIC stated that the hearings, which will be live streamed online, are aimed at “testing the views of stakeholders and providing greater understanding of business operations”.

“The responsible provision of credit is critical to the Australian economy,” ASIC commissioner Sean Hughes said. 

“We are taking this opportunity to test views to make sure our guidance remains relevant, clear and timely.

“Public hearings will provide a robust and transparent way to air issues and views raised in written submissions.”

The stakeholders invited to participate in the hearings will be drawn from the groups or individuals who provided a written submission to ASIC on the responsible lending guidance.

ASIC Still Looking At Responsible Lending

In a keynote address by ASIC Chair, James Shipton at Committee for Economic Development of Australia (CEDA) event in Melbourne yesterday, it appears the regulator will hold public hearings about responsible lending practices. 

He said that ASIC was updating its responsible lending guidance, and as part of its consultation, public hearings would be held to “robustly test some of the issues and views that have been raised in submissions”.

This is a follow-up to ASIC’s consultation paper on updating its guidance on responsible lending, which was issued in mid-February 2019.

Interestingly, ASIC has discretion as to whether such hearings would take place privately or publicly. However the regulator is required to have regard to whether it is in the public interest for a hearing to take place in public.

In addition, ASIC also has power to summon witnesses and require the production of documents for the purposes of a public hearing.  It may also refer to a court any questions of law arising at a hearing.

To date ASIC has hardly used it hearings powers but is does appear they intend to utilise these as an aspect of its renewed approach to enforcement in the wake of the Hayne Royal Commission.

We are embedding and expanding new supervisory approaches and promoting best practice and innovation in regulation – particularly through our Close & Continuous Monitoring program (or CCM) and our corporate governance review that is aimed at improving governance practices at the board level.

We are also implementing new and existing reforms and working towards our new obligations and responsibilities in response to the Royal Commission. This includes an expanded role for ASIC to become the primary conduct regulator in superannuation.

ANZ Complies With ASIC Court Enforceable Undertaking

ASIC says:

Australia and New Zealand Banking Group Limited (ANZ) has complied with the Court Enforceable Undertaking (CEU) entered into with ASIC in March 2018 regarding ANZ’s fees for no service conduct for its Prime Access service.

On 31 May 2019, ASIC received an audited attestation from ANZ signed by Mr Michael Norfolk, Managing Director Private Banking and Advice, and an independent expert report from Ernst & Young (EY).

ASIC is satisfied with the audited attestation and the independent expert report. Compliance with the obligations under the CEU is now finalised, save for the payment of some remaining refunds due to clients, to be completed by mid-July 2019.

ANZ has attested to the following as required under the CEU:

  1. the changes to ANZ’s systems, controls and processes that have been implemented in response to the fees for no service conduct;
  2. subject to (c), that ANZ has provided documented annual reviews to Prime Access customers who were entitled to such reviews in the period from January 2014 to March 2018;
  3. in the 1,410 instances where documented annual reviews were found to have not been provided, ANZ is in the process of refunding those customers (with remediation expected to be complete by mid-July 2019); and
  4. that ANZ now has systems, controls and processes that seek to ensure documented annual reviews are being provided, and that instances of non-delivery are detected and remediated.

ASIC is aware that ANZ has announced it will no longer offer the Prime Access service to new customers and will phase it out for current customers over the next 18 months. ASIC will monitor the phasing out of Prime Access.

An Insider Speaks To The People [Podcast]

Here is an extended discussion between Ex APRA/ASIC Executive Wilson N. Sy, Economist John Adams and Analyst Martin North. We look at how banking is regulated and who is really pulling the strings.

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
An Insider Speaks To The People [Podcast]
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