CBA’s new CEO Matt Comyn has written to staff as the the blow touch is applied by the inquiry.
This week the Royal Commission into Misconduct in Banking, Insurance and Superannuation commenced hearings in Melbourne.
From the outset, we said that we were absolutely determined to be cooperative and open with the Commission. Unfortunately, as we heard on Tuesday, our first submissions did not meet the Commission’s expectations. This was never our intention and we will resubmit our information as soon as possible and ensure we have fully met the requests of the Commission. We will work to make sure this doesn’t happen again.
There will be cases highlighted next week where customers have been treated unfairly by us. In many cases, our actions have had a significant impact on the financial and emotional wellbeing of our customers. This is unacceptable.
Where we have made mistakes we must and will take responsibility for them, we will make things right for our customers, and not repeat the same mistakes. We will exceed our regulatory and compliance obligations, and enhance the financial wellbeing of every single customer we serve.
Together, we will make our bank better, and one we can all continue to be proud of.”
Today we examine the Mortgage Industry Omnishambles. And it’s more than just a flesh wound!
Welcome to the Property Imperative Weekly to 17th March 2018. Watch the video, or read the transcript.
In this week’s review of property and finance news we start with the latest January data from the ABS which shows lending for secured housing rose 0.14% or 28.8 million to $21.1 billion. Secured alterations fell 1%, down $3.9 million to $391 million. Fixed personal loans fell 0.1%, down $1.2 million to $4.0 billion, while revolving loans fell 0.06%, down $1.3 million to $2.2 billion.
Investment lending for construction of dwellings for rent rose 0.86% or $10 million to $1.2 billion. Investment lending for purchase by individuals fell 1.34%, down $127.7 million to $9.4 billion, while investment lending by others rose 7.7% up $87.2 million to $1.2 billion.
Fixed commercial lending, other than for property investment rose 1.25% of $260.5 million to $21.1 billion, while revolving commercial lending rose 2.5% or $250 million to $10.2 billion.
The proportion of lending for commercial purposes, other than for investment housing was 45% of all commercial lending, up from 44.5% last month.
The proportion of lending for property investment purposes of all lending fell 0.1% to 16.6%.
So, we are seeing a rotation, if a small one, towards commercial lending for more productive purposes. However, lending for property and for investment purposes remains quite strong. No reason to reduce lending underwriting standards at this stage or weaken other controls.
But this also explains the deep rate cuts the banks are now offering – even to investors – ANZ Bank and the National Australia Bank were the last of the big four to announce cuts to their fixed rates, following similar announcements from the Commonwealth Bank and Westpac. NAB has dropped its five-year fixed rate for owner-occupied, principal and interest home loans by 50 basis points, from 4.59 per cent to 4.09 per cent. The bank has also reduced its fixed rates on investor loans by up to 35 basis points, with rates starting from 4.09 per cent. And last week ANZ also dropped fixed rates on its “interest in advance”, interest-only home loans by up to 40 basis points, with rates starting from 4.11 per cent. Further, fixed rates on its owner-occupied, principal and interest home loans have fallen by 10 basis points, with rates now starting from 3.99 per cent. This fixed rate war shows our big banks are not pricing in a rate hike anytime soon.
But we think these offers will likely encourage churn among existing borrowers, rather than bring new buyers to the market. For example, the ABS housing finance data showed that in original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 18.0% in January 2018 from 17.9% in December 2017 – and this got the headline from the real estate sector, but the absolute number of first time buyers fell, thanks mainly to falls of 22.3% in NSW and of 13.3% in VIC. More broadly, there were small rises in refinancing and investment loans for entities other than individuals.
The latest data from CoreLogic shows home prices fell again this week, with Sydney down for the 27th consecutive week, and their index registering another 0.09% drop, whilst auction volumes were down on last week. They say that last week, the combined capital city final auction clearance rate fell to 63.3 per cent across a lower volume of auctions with 1,764 held, down from the 3,026 auctions over the week prior when a slightly higher 63.6 per cent cleared. The weighted average clearance rate has continued to track lower than results from last year; when over the corresponding week 75.1 per cent of the 1,473 auctions sold.
But the strategic issues this week relate to the findings from the Royal Commission and from the ACCC on mortgage pricing. I did a separate video on the key findings, but overall it was clear that there are significant procedural, ethical and even legal issue being raised by the Commission, despite their relatively narrow terms of reference. They cannot comment on bank regulation, or macroprudential, but the Inquiries approach is to examine a series of case studies, from the various submissions they have received, and then apply forensic analysis to dig into the root causes examining misconduct. The question of course is, do the specific examples speak to wider structural questions as we move from the specific instances. We discussed this on ABC Radio this week.
From NAB we heard about referrer’s providing leads to the Bank, outside normal lending practices and processes, and some receiving large commissions, despite not being in the ambit of the responsible lending code. From CBA we heard that the bank was aware of the conflict brokers have especially when recommending an interest only loan, because the trail commission will be higher as the principal amount is not repaid. And from Aussie, we heard about their reliance on lenders to trap fraud, as their own processes were not adequate. And we also heard of examples of individual borrowers receiving loans thanks to poor conduct, or even fraud. We also heard about how income and expenses are sometimes misrepresented. So, the question is, do these various practices show up more widely, and what does this say about liar loans, and mortgage systemic risk?
We always struggled to match the data from our independent household surveys with regards to loan to income, and loan to value, compare with loan portfolios we looked at from the banks. Now we know why. In some cases, income is over stated, expenses are understated, and so loan serviceability is a potentially more significant issue than the banks believe – especially if interest rates rise. In fact, we saw very similar behaviours to the finance industry in the USA before the GFC, suggesting again we may see the same outcomes here. One other point, every lender is now on notice that they need to look at their current processes and back book, to test affordability, serviceability and risk. This is a big deal.
I will also be interested to see if the Commission turns to look at foreclosure activity, because this is the other sleeper. Mortgage delinquency in Australia appears very low, but we suspect this is associated with heavy handed forced sales. Something again which was apparent around the GFC.
More specifically, as we said in a recent blog, the role and remuneration models for brokers are set for a significant shakedown.
Turning to the ACCC report on mortgage pricing, this was also damming. Back in June 2017, the banks indicated that rate increases were primarily due to APRA’s regulatory requirements, but now under further scrutiny they admitted that other factors contributed to the decision, including profitability. Last December, the ACCC was called on by the House of Representatives Standing Committee on Economics to examine the banks’ decisions to increase rates for existing customers despite APRA’s speed limit only targeting new borrowers. The investigation falls under the ACCC’s present enquiry into residential mortgage products, which was established to monitor price decisions following the introduction of the bank levy. Here are the main points.
Banks raised rates to reach internal performance targets: concern about a shortfall relative to performance targets was a key factor in the rate hikes which were applied across the board. Even small increases can have a significant impact on revenue, the report found. And the majority of existing borrowers would likely not be aware of small changes in rates and would therefore be unlikely to switch.
A shared interest in avoiding disruption: Instead of trying to increase market share by offering the lowest interest rates, the big four banks were mainly preoccupied and concerned with each other when making pricing decisions. It shows a failure in competition (my words).
Reputation is everything: The banks it seems were very conscious of how they should explain changes. As it happens, blaming the regulators provides a nice alibi/
For Profit: Internal memos also spoke of the margin enhancement equating to millions of dollars which flowed from lifting investment loans.
New Loans are cheaper, legacy rates are not. Banks of course are offering deep discounts to attract new customers, funded by the back book repricing. The same, by the way, is true for deposits too.
The Australian Bankers Association “silver lining” statement on the report said they welcomed the interim report into residential mortgages, which clearly shows very high levels of discounting in the Australian home loan market. It’s clear that competition is delivering better deals for customers, shopping around works and Australians should continue to do so to get the best discounts on the advertised rate. But they are really missing the point!
We will see if the final report changes, but if not these are damming, but not surprising, and again shows the pricing power the major lenders have.
So to the question of future rate rises. The FED meets this week, and the expectation is they will lift rates again, especially as the TRUMP tax cuts are inflationary, at a time when the US economy is already firing. In a recent report Fitch Ratings said that Central banks are becoming less cautious about normalising monetary policy in the face of strong growth and diminishing spare capacity. They expect the Fed to raise rates no less than seven times before the end of next year. And while still sounding tentative, the European Central Bank is clearly laying firm groundwork for phasing out QE completely later this year. They now also expect the Bank of England to raise rates by 25bp this year.
Guy Debelle, RBA Deputy Governor spoke on “Risk and Return in a Low Rate Environment“. He explored the consequences of low rates, on asset prices, and asks what happens when rates rise. He suggested that we need to be alert for the effect the rise in the interest rate structure has on financial market functioning, and that investors were potentially too complacent. There are large institutional positions that are predicated on a continuation of the low volatility regime remaining in place. He had expected that volatility would move higher structurally in the past and this has turned out to be wrong. But He thinks there is a higher probability of being proven correct this time. In other words, rising rates will reduce asset prices, and the question is – have investors and other holders of assets – including property – been lulled into a false sense of security?
All the indicators are that rates will rise – you can watch our blog on this. Rising rates of course are bad news for households with large mortgages, exacerbated by the possibility of weaker ability to service loans thanks to fraud, and poor lending practice. We discussed this, especially in the context of interest only loans, and the problems of loan resets on the ABC’s 7:30 programme on Monday. We expect mortgage stress to continue to rise.
There was more discussion this week on Housing Affordability. The Conversation ran a piece showed that zoning is not the cause of poor affordability, and neither is supply of property. Indeed planning reform they say is not a housing affordability strategy. Australia needs a more realistic assessment of the housing problem. We can clearly generate significant dwelling approvals and dwellings in the right economic circumstances. Yet there is little evidence this new supply improves affordability for lower-income households. Three years after the peak of the WA housing boom, these households are no better off in terms of affordability. In part, this may reflect that fact that significant numbers of new homes appear not to house anyone at all. A recent CBA report estimated that 17% of dwellings built in the four years to 2016 remained unoccupied. If we are serious about delivering greater affordability for lower-income Australians, then policy needs to deliver housing supply directly to such households. This will include more affordable supply in the private rental sector, ideally through investment driven by large institutions such as super funds. And for those who cannot afford to rent in this sector, investment in the community housing sector is needed. In capital city markets, new housing built for sale to either home buyers or landlords is simply not going to deliver affordable housing options unless a portion is reserved for those on low or moderate incomes.
But they did not discuss the elephant in the room – booming credit. We discussed the relative strength of different drivers associated with home price rises in a separate, and well visited blog post, Popping The Housing Affordability Myth. But in summary, the truth is banks have pretty unlimited capacity to create more loans from thin air – FIAT – let it be. It is not linked to deposits, as claimed in classic economic theory. The only limit on the amount of credit is people’s ability to service the loans – eventually. With that in mind, we built a scenario model, based on our core market model, which allows us to test the relationship between home prices, and a series of drivers, including population, migration, planning restrictions, the cash rate, income, tax incentives and credit.
We found the greatest of these is credit policy, which has for years allowed banks to magic money from thin air, to lend to borrowers, to drive up home prices, to inflate the banks’ balance sheet, to lend more to drive prices higher – repeat ad nauseam! Totally unproductive, and in fact it sucks the air out of the real economy and money directly out of punters wages, but make bankers and their shareholders richer. One final point, the GDP calculation we use in Australia is flattered by housing growth (triggered by credit growth). The second driver of GDP growth is population growth. But in real terms neither of these are really creating true economic growth. To solve the property equation, and the economic future of the country, we have to address credit. But then again, I refer to the fact that most economists still think credit is unimportant in macroeconomic terms! The alternative is to continue to let credit grow well above wages, and lift the already heavy debt burden even higher. Current settings are doing just that, as more households have come to believe the only way is to borrow ever more. But, that is, ultimately unsustainable, and this why there will be an economic correction in Australia, and quite soon. At that point the poor mortgage underwriting chickens will come home to roost. And next time we will discuss in more detail how these scenarios are likely to play out. But already we know enough to show it will not end well.
One worrying takeaway from the first week of the Financial Services Royal Commission is how many elderly people are being adversely affected by irresponsible lending.
Such lending is often the result of an agreement with a family member, for example an adult child, to help that person financially by entering into a joint loan. These loans are secured against the older person’s home, which is a huge risk if the loan defaults and the older person cannot service the debt.
To ensure that older people contemplating joint loans are aware of the downside of transactions, there needs to be greater access to legal and financial advice prior to the transaction and better training for bank employees and loan officers about responsible lending obligations and the potential “unsuitabilty” of such loans.
Consideration should also be given to larger penalties for banks that provide unsuitable loans to older people.
On the face of it, there are laws that should safeguard elderly consumers from “getting in over their head”.
When a consumer applies for credit, the National Consumer Credit Protection Act obliges a credit provider to make reasonable inquiries about the consumer’s financial situation and their requirements and objectives.
However, the Consumer Action Law Centre says that “it is common that these steps are not adequately followed by lenders”.
Even if these steps are followed, the legislation does not define “substantial hardship”. There is a presumption that if a consumer must sell their principal residence to pay back a loan, this demonstrates substantial hardship.
Emotional lending
Of particular concern is when an older person is persuaded to enter into a joint loan with a third party, such as their son or daughter. These loans are invariably secured by the older person’s property, with the younger person agreeing to pay off the debt.
If the adult child does not pay off the debt, the older person – who is often asset-rich but income-poor – may be unable to service the loan. The older person’s property will be repossessed by the lender, forcing them to relocate, enter the rental market, or even become homeless.
The loans may arise simply because the older person wants to help their adult child through a difficult financial period. It is understandable that a parent would want to help if a business is failing or a child is at risk of losing their house.
But such loans often arise within an atmosphere of crisis (real or exaggerated), in which the adult child pressures the older person into entering into the loan.
In extreme cases, older people have been told that they will be unable to see their grandchildren if they do not enter into loans.
It is not always that the older person is vulnerable per se, but that they are “situationally vulnerable” because of concern for the well-being of a child, or the desire to maintain relationships.
The reality is that it is often difficult for the older person to refuse.
Karen Cox of the Financial Rights Legal Centre noted at the Royal Commission that these loans are:
outright exploitative … elderly persons [are] left in dire circumstances as a result of a loan for which they’ve seen absolutely no benefit.
Similar comments apply to other financial transactions made for the benefit of a third party such as entering into a “reverse mortgage”. This is where the older person takes out a loan against the equity built up in a home (or other asset), with the money given to a child to buy a house or prop up their business.
What could be done?
Advocates are rightly concerned about the financial consequences for older people who enter into such loans. However, the property does belong to the older person and they are entitled to make whatever decisions they want, including risky ones.
Elderly people should be fully informed of their obligations and the potential consequences, should a transaction goes wrong. Banks could lead the way with this.
One initiative would be for the banks to contribute to legal and financial advice for older people, or subsidise the provision of such advice at community legal centres.
Loan assessors and brokers must also be made aware of the risks of such transactions.
The Australian Bankers Association is introducing enhanced measures to address elder financial abuse and the risks associated with such loans should be emphasised.
Finally, the government should consider tougher penalties against credit providers who disregard responsible lending obligations. Presently, if a bank is found to have lent irresponsibly they will simply compensate the consumer for the loss. Meaningful penalties that deter reckless lending should be considered.
Author: Eileen Webb, Professor, Curtin Law School, Curtin University
The Banking Royal Commission has already cast a spotlight on so called Introducer Programmes, which allows professionals like lawyers, accountants and even real estate agents to be rewarded for flagging a potential mortgage lead to a bank. They are paid if the lead is converted by the bank.
As they are not providing financial advice, there is no formal regulation, only “professional” standards that they should disclose any financial reward for such activities. But how many do? Would you know?
This is, to put it mildly, a black hole. NAB showed that between 2013 and 2016 its introducer program brought in mortgages worth $24 billion, while paying out around $100 million in commissions to its introducers, or about 0.4%. Given that mortgage brokers get around 0.68% plus a trail, for doing significant work to steer an application through, introducers get money for old rope.
ASIC already highlighted this practice during evidence to the Productivity Commission review into Financial Services. An ASIC representative emphasised that although there is an exemption within the law for referrers, he noted that there is now “a fairly large industry of referrers comprising professionals, lawyers, accountants and advisers who do directly refer consumers to particular lender[s]” and that the commissions paid to these referrers “can be quite significant.
Disclosure needs to be tightened, and I question whether there is a role for such introduces at all.
Separately at the RC, we learnt that the banks are talking about adopting an updated HEM (the Melbourne Institute based benchmark). “The Household Expenditure Measure (HEM) is a measure that reflects a modest level of weekly household expenditure for various types of families. The Melbourne Institute produces the quarterly HEM report which is distributed through RFi Roundtables”.
The HEM is used to benchmark household expenditure as part of a loan application, and it looks like revisions will hit later in the year. But the RC probed whether there was a first mover disadvantage (as the metrics would lead to less ability to lend) and whether this is why there was an industry led coordinated approach.
Does the fact that there is an industry panel trying to deal with this motivate it, in part, by the avoidance of first mover penalty?—No. Well, that certainly wasn’t the motivation to set up the working group. It is something that has been discussed though, is with a number of changes coming this year in terms of uplifting serviceability standards, such as comprehensive credit, changes to HEM and new 25 measures such as debt to income ratios, it has been something discussed around the first mover disadvantage.
I wonder if the ACCC would have a view?
The RC also probed whether the HEM adequately reflected true levels of expenditure, as it was based on a “modest” lifestyle.
The first full day contained a number of significant revelations, including that millions have been paid by the banks in remediation, the fact that some entities appeared not to be fully cooperating with the Inquiry and others admitted conduct “falling below community standards and expectations”.
Remediation includes $250m to 540,000 home loan customers, relating to fraudulent documents, poor processes and failure in responsible lending practices. In addition $11m remediation was paid to to 34,000 card customers relating to responsible lending. Also $128m was paid relating to add on services, including a significant amount for car loan add ons and $900,000 for home loan add ons relating to 10,500 consumers. Also remediation of $90m was paid relating to car loans to around 17,000 consumers relating to fraudulent documentation and responsible lending obligations.
I discussed the issues raised by the first day of the current hearing rounds on ABC Illawarra this morning.
A good summary also from Australian Broker, looking at the NAB “Introducer Programme”.
Banks’ mortgage practices came under heavy scrutiny on Tuesday, as the Royal Commission began the second round of hearings in its inquiry on misconduct in the financial services industry.
Prime Minister Malcolm Turnbull announced the Royal Commission in November last year, to investigate how financial institutions have dealt with misconduct in the past and whether this exposes inherent cultural and governance issues.
According to ASIC figures, banks have paid almost $250m in remediation to almost 540,000 consumers since July 2010 for unacceptable home loan practices. Reuters data show that Australia’s four largest banks – CBA, ANZ, Wetpac, and NAB – hold about 80% of the country’s $1.7trn mortgage market.
During Tuesday’s hearing, officials shone a spotlight on National Australia Bank’s (NAB’s) “introducer program,” which paid third party professionals for referring their customers to the bank for loans. Unlike brokers, they are not required to be licensed or regulated by the National Credit Act.
NAB fired 20 bankers in New South Wales and Victoria last year and disciplined 32 others, after the bank’s review identified around 2,300 home loans since 2013 that may have been submitted with incomplete or incorrect information.
According to Rowena Orr, a barrister assisting the Royal Commission in Melbourne, the bank derived more than $24bn-worth of home loans when the misconduct took place from 2013 to 2016. “The introducer program was extremely profitable for NAB during the period where misconduct occurred, she said.
The Introducer Program still operates up to this day, with some 1,400 “introducers.” There were about 8,000 of them from 2013 to 2016, said NAB banker Anthony Waldron, who was put forth as a witness for the inquiry.
In an open letter released on Monday, NAB CEO Andrew Thorburn described the incident as “regrettable and unacceptable.” He said the bank has made changes to the introducer program, and has also cooperated with the Royal Commission’s requests for information over the last few months.
“The simple fact is that none of these issues are acceptable. They should not have happened in the first place, and they show that we haven’t always done right by our customers or treated the community with respect. This is not good enough,” Thorburn added.
The ABC cited a Western Australian borrower who managed to get mortgages – often interest only loans – for more than a dozen properties without the financial status to service them.
I provided some grabs for the segment, referring to the size of the impending IO loan problem across the country.
The Financial Services Royal Commission just published an information paper, the third in their series, on car loans ahead of their hearings next week.
They say car loans make up a very small proportion of new finance commitments, making up 4.2% of total new finance commitments in calendar year 2017, an increase from 2.7% in calendar year 2007. But delinquency rates are rising. The value of loans is north of $35 billion.
For calendar year 2017, new finance commitments for motor vehicles totalled around $35.7 billion, but this excludes commitments of revolving credit. An aggregate revolving credit figure is published by the ABS but not attributed to a purpose (such as the purchase of motor vehicles). In particular, revolving credit may include dealer ‘floor plan’ financing arrangements, which allows a car dealer to settle a liability with a financier simultaneously with, or soon after, the sale of the vehicle to a customer.
Indicatively, 90% of all car sales are arranged through finance, of which around 39% are financed through a dealership and around 61% are financed from other sources.
In the December quarter 2017, car loan payments were the largest vehicle-related expense for the ‘hypothetical household’ in both capital cities and regional areas, with repayments larger than weekly fuel costs.
Over the past 10 years there has been an increase in financing for new motor vehicles and a decrease in financing for used motor vehicles.
Profit margins for car dealers rely not only on car sales, but on ancillary services, including the sale of finance and insurance.
While there is no comprehensive list of the number of car loan providers and brokers owned by or who are authorised representatives of AFSLs that are ADIs, some finance brokers owned by ADIs are providers of car loans and leases. Some illustrative examples are provided below.
Esanda, a provider of motor vehicle financing, is a division of ANZ Banking Corporation. In October 2015, ANZ agreed to the sale of the Esanda Dealer Finance portfolio to Macquarie Group Limited. The sale affected finance arranged through a car dealership, rather than financing arranged with Esanda directly or through a finance broker.
As at the announcement date (8 October 2015), the sale of the retail Dealer Finance portfolio was expected to be complete by 31 October 2015 and the wholesale Dealer Finance portfolio by 31 March 2016.
Macquarie notes on its website that it is ‘one of Australia’s largest motor financiers’, with car finance, sourcing and other services provided by Macquarie Leasing Pty Ltd.
MyFord Finance is a registered business name of Macquarie Leasing Pty Ltd.54 ACA Research, which publishes an annual Automotive Finance Insight Report based on a survey of nearly 800 automotive finance customers throughout Australia, notes in an article from December 2016 that ‘ANZ and Macquarie Bank (including Esanda) are currently the greatest beneficiaries of the broker channel’.
Holden Financial Services is a registered trademark of General Motors LLC and is used under sub-licence by St George Bank, a division of Westpac Banking Corporation Limited.
According to ASIC, car dealers have two main sources of finance-related income from a sale. Either they receive ‘a range of financial benefits from lenders, including upfront commissions for individual loans, volume bonuses according to the level of business arranged with a lender, and soft dollar benefits’.
‘Soft-dollar’ benefits are benefits received other than a basic cash commission or direct client fee.
Alternatively, dealers ‘can charge the consumer a dealer origination fee for assisting in the provision of finance’.
The ACCC notes that after-market services can often ‘contribute significantly to manufacturers’ and dealers’ overall profitability’, noting that ‘dealers will be willing to sell some goods and services with a lower mark-up (including new cars) if this means they can sell more high mark-up services (such as parts, insurance and finance)’.
On 7 September 2017, ASIC banned ‘flex commissions’ in the car finance market. Flex commissions are paid by lenders to car finance brokers (typically car dealers), allowing the dealers to set the interest rate on the car loan. The legislative instrument set by ASIC operates so that the lender not the car dealer has responsibility for determining the interest rate that applies to a particular loan. Lenders and dealerships have until November 2018 to implement new commission arrangements that comply with the new law.
ACA Research has noted that, based on its survey data released in 2016, around 33% of buyers browsed a finance broker website and 16% of buyers used a broker to secure financing. ACA Research results also showed that consumers who obtain car loans spend time considering their options before visiting a dealership. 81% of consumers researched finance options online, 76% of consumers considered their finance options prior to test driving a vehicle and 51% of consumers chose a lender prior to visiting a dealership.
Stratton Finance, a finance broker specialising in car financing, notes from its research that in 2017, the average car loan size was $39,445, the median loan size was $31,003 and the most popular loan size was $20,000. Stratton Finance also noted that men on average borrow around $5,000 more to finance a vehicle purchase than women. According to Stratton Finance, this was a result of women choosing to purchase smaller, more economical cars.
The delinquency indices for motor vehicle loans have increased since 2012, but remain at low levels in absolute terms. The 30+ days past due arrears rate has increased to 1.6% of loans by end June 2017 and the 60+ days past due arrears rate has increased to 0.8% of loans by end June 2017. Both indices, according to Fitch Ratings, have reached ‘record quarter-end levels’. Fitch expects increased losses in the September quarter 2017, reflecting rising arrears over the past nine months.
The royal banking commission has rejected CBA’s request not to disclose parts of evidence regarding the bank’s CreditCard Plus product.
The commission only agreed to keep confidential the name and policy number of the CBA consumer who made a complaint about the product.
In a note released last Friday, Commissioner Kenneth Hayne said CBA applied for a non-publication direction under s 6D(3) section of the Royal Commissions Act regarding parts of a draft statement to be given by a CBA employee about CreditCard Plus.
The evidence refers to CBA’s communications with ASIC regarding CreditCard Plus, an add-on insurance policy sold with credit cards, personal loans, home loans, and car loans. CBA said in its non-publication application that those communications should be treated as confidential.
ASIC announced in August 2017 that CBA would refund over 65,000 customers about $10m after selling them the consumer credit insurance product. The regulator said the product was unsuitable for those customers.
Details of the remediation program are among those CBA asked not to be published.
“General assertions are made that certain kinds of communication, such as, for example, communications between CBA and regulators, are confidential. Why the particular communications should be treated in this way is not explained,” said Hayne.
He added that arguments framed in such a way are “unhelpful and unpersuasive”.
“Absent ASIC joining in an application for a non-publication direction, I do not accept that a non-publication direction should be made in respect of any of those parts of the draft statement.”
Hayne said it was also necessary to bear in mind that CBA acknowledged in its first submission to the commission that the conduct concerned in the evidence fell short of community standards and expectations.
“CBA identified no damage to itself or any other person that would follow from publication of the material,” he said in closing.
In deciding to detail and publish its reasons for the decision, the commission seeks to provide “guidance” to others involved in its inquiry.
“The application made by CBA in respect of this witness statement does warrant a more elaborate statement of reasons and warrant publication of those reasons for the guidance of others who may seek a direction under s 6D(3),” said Hayne.
The royal commission is holding its first round of hearings from 13 to 23 March 2018 focusing on consumer lending.
The Banking Royal Commission says the first round of public hearings will be held in Melbourne at the Owen Dixon Commonwealth Law Courts Building at 305 William Street from Tuesday 13 March to Friday 23 March.
They listed the range of matters they are exploring, from mortgages, brokers, cards, car finance, add-on insurance and account administration, with reference to specific banks, including NAB, CBA, ANZ, Westpac, Aussie, and Citi.
The first round of public hearings will consider aspects of the treatment of consumers by banking and financial services providers in connection with a number of credit products, including residential mortgages, car finance and credit cards. It will also consider the arrangements and practices of banking and financial services providers and their intermediaries.
The Commission presently intends to deal with consumer lending for the purposes of the public hearings by reference to the case studies set out below.
Topic
Case Studies
1.
Residential Mortgages
NAB Introducer Program and fraudulent loan applications
Aussie Home Loans fraudulent brokers and broker arrangements
CBA accreditation of brokers and broker arrangements
2.
Car Finance
Westpac/St George car finance practices
ANZ/Esanda car finance practices
3.
Credit Cards
Westpac unsuitable credit card limit increases
Citi imposition of international transaction fees
4.
Add-On Insurance Products
CBA credit insurance in connection with home loans, personal loans and credit cards
5.
Credit Offers
ANZ unsuitable pre-approved overdraft offers
6.
Account Administration
ANZ account administration errors
CBA unsuitable overdraft facilities and failure of automated systems
A number of consumers will give evidence of their particular experiences during the hearings. The entities that are the subject of consumer evidence will be informed by the Commission. A representative of a consumer advocacy group will also give evidence.
Further topics may be included and the list above will be updated accordingly before the hearings commence.
The Banking Royal Commission has released an information paper on Mortgage Brokers. It is a good summary and looks at industry structure, shares, and commissions.
According to data from the MFAA and the ABS, the total value of new loans placed by brokers has increased as a percentage of GDP since March 2013 but has remained relatively stable over recent quarters. Loans placed by brokers in the March quarter 2017 was equivalent to around 2.7% of nominal GDP (four quarters to March 2017), up from around 1.6% in the March quarter 2013. In the four quarters to March 2017, the value of the loans placed by brokers was equivalent to around 11 % of nominal GDP
According to data provided by The Adviser on the top 25 brokers, four brokers — Aussie, Mortgage Choice, Loan Market and Smartline Personal Mortgage Advisers — are larger in terms of total book size, volume of loans settled and number of brokers. The remaining brokers in The Adviser’s top 25 have a smaller share of the market.
