Bendigo Bank ‘named and shamed’ for systemic mistreatment of Great Southern borrowers

The Banking Code Compliance Committee (BCCC) has sanctioned the Bendigo and Adelaide Bank by naming it in its 2019-2020 Annual Report for systemic breaches of the Banking Code of Conduct (2013 version). It was the only bank named.

The BCCC is an independent committee set up by and funded by the Australian Banks. It describes its work as:

“we run a monitoring program that helps banks strengthen their compliance frameworks to better identify, report and remedy breaches of the Banking Code of Practice. We also share our Code compliance knowledge and guide banks on good industry practice.”

In its 2019-2020 Annual Report issued on 30 September 2020, the BCCC devotes a special section to report on its investigation into the Bendigo and Adelaide Bank, which is reproduced in full as follows:
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Bendigo and Adelaide Bank sanctioned for serious and systemic Code breaches

In March 2017, the Code of Conduct Monitoring Committee (CCMC) commenced an investigation into Bendigo and Adelaide Bank. The investigation focussed, in particular, on its Great Southern Loans (GSL) business unit’s compliance with the 2013 Code of Banking Practice (2013 Code). As part of this investigation, Bendigo and Adelaide Bank was required by the BCCC to engage an external and independent party to conduct an investigatory Audit into the GSL business unit’s compliance with the 2013 Code from February 2015 to February 2019.

The Audit found that the GSL business unit was largely segregated from the bank’s broader operations and it had inadequate systems, processes and resources to cope with a large influx of collections activity in 2015. The BCCC concluded that the bank’s lack of oversight led to a failure to build a strong compliance structure and framework that could robustly identify, investigate, record and report instances of non-compliance with the 2013 Code within GSL.

The BCCC has now issued a Finding which concluded that Bendigo and Adelaide Bank breached the following provisions of the 2013 Code:

Clause 32.1 (debt collection)
Clause 28.2 (financial difficulty)
Clause 37 (complaints handling)
Clause 24 (privacy and confidentiality)
Clause 9 (training and competency)
Clause 36(g) (complying with CCMC/ BCCC requests)
Clause 3.2 (acting fairly and reasonably).

The BCCC found that the bank’s breaches of all obligations listed above were systemic (with the exception of clause 36(g)) and serious.

Taking into account the seriousness of the breaches and their likely impact on GSL customers, the BCCC imposes a sanction to name Bendigo and Adelaide Bank in this Annual Report and on our website for breaches of the 2013 Code.

The BCCC acknowledges the work Bendigo and Adelaide Bank has undertaken since the completion of the Audit to address the shortfalls and root causes identified to ensure its ongoing compliance with the Code. We also note the bank’s ongoing efforts to remediate any applicable GSL customers who were adversely impacted by Bendigo and Adelaide Bank’s non-compliance with the 2013 Code.
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The Adelaide and Bendigo Bank’s response

The Bendigo and Adelaide Bank responded on 30 September 2020 with a Statement on BCCC Findings. These are some extracts:

Bendigo and Adelaide Bank has taken swift and decisive action to remedy historical breaches of the Code of Banking Practice 2013 (Code) reported today by the Banking Code Compliance Committee (BCCC) regarding some customers within the Great Southern loan portfolio.

The historical breaches relate to debt collection processes, with 81 percent of the issues identified relating to the 2015 and 2016 calendar years.

Managing Director, Marnie Baker said: “We regret our actions and sincerely apologise for any negative impacts these breaches have cause for our customers.”

A provision for remediation for matters including these breaches (of $1 million) was disclosed in the Bank’s FY20 Results.

Potentially impacted Great Southern customers are those that sought financial hardship in 2015.

we estimate there to be less than 450 accounts that may require remediation and / or goodwill payments.

The historic breaches do not impact Great Southern borrowers’ obligations, nor do they affect the Bank’s legal rights on loans that have previously been repaid and/or recovered by the Bank. This has been confirmed through extensive legal processes, including via the Victorian Supreme Court.
The contrite tone in this media announcement contracts with the indignant tone in the Bendigo and Adelaide Bank’s Announcement headed ‘Response to Fairfax’s Great Southern Articles published on 28 July 2018’.

These are some extracts:

The Bank did not act in an aggressive or unethical manner in its dealings with Great Southern investors, and rejects any accusations of this nature in the strongest terms.

In collecting the amounts rightfully owing to the Bank, we have acted respectfully towards Great Southern borrowers, in accordance with the law and consistent with community standards and expectations.

The Bank is committed to helping customers who experience financial hardship. Our policies and procedures provide a consistent and sound framework to actively consider applications for financial hardship in accordance with legislative and regulatory requirements, the Code of Banking Practice and industry standards.

The Bendigo Bank provided these interesting statistics in that Response:

There were approximately 8,200 borrowers when Great Southern collapsed in May 2009. Eight months later, about 6,500 borrowers owed $508.2 million.
1,033 borrowers owed $86.1 million at 31 December 2017. The vast majority of borrowers have made arrangements to repay the Bank.

Comments

The BCCC’s sanctions, and the Bendigo and Adelaide Bank’s acceptance, has opened the door to Great Southern borrowers to claim remediation and/or goodwill payments if they experienced aggressive debt collection practices after February 2015. According to the Bendigo Bank, there are less than 450 accounts that may require remediation and/or goodwill payments.
The standard set in clause 32.1 of the Code of Banking Practice is compliance with the ACCC’s and ASIC’s “Debt Collection Guideline: for Collectors and Creditors”, particularly the prohibition on using undue harassment and coercion to obtain payment.
The legislative basis is s 50(1) of the Australian Consumer Law which is:

50 Harassment and coercion
(1) A person must not use physical force, or undue harassment or coercion, in connection with:
1. the supply or possible supply of goods or services; or
2. the payment for goods or services; or
Note: A pecuniary penalty may be imposed for a contravention of this subsection.
s 12DJ of the Australian Securities and Investments Act 2001 contains a similar provision:

12DJ Harassment and coercion
(1) A person contravenes this subsection if:
1. the person uses physical force or undue harassment or coercion; and
2. the person uses such force, harassment or coercion in connection with the supply or possible supply of financial services to a consumer, or the payment for financial services by a consumer.
The Debt Collection Guideline does not provide any guide to amounts of compensation payable. But in the recent decision of Australian Competition and Consumer Commission v Panthera Finance Pty Ltd [2020] FCA 340 (12 March 2020), the Federal Court of Australia ordered Panthera to pay $125,000 to each of 3 consumers for contravention of s 50(1) of the Australian Consumer Law.
Panthera, Justice Jagot found that “Panthera’s conduct was such as to “intimidate or demoralise, tire out or exhaust a debtor, rather than merely to convey the demand for recovery””. The BCCC’s finding that the conduct was serious and systemic should be sufficient for a Court to order Bendigo Bank to pay a substantial penalty. It’s for ASIC to bring the penalty proceedings.
In Victoria, the Australian Consumer Law and Fair Trading Act 2012 (Vic) permits debtors to seek up to $10 000 as compensation for humiliation and distress caused by debt collection conduct such as undue harassment and coercion (refer s 46).
The provision of $1 million in the Bank’s 2020 Financial Accounts for compensation (see above), appears to be a material under provision, given that the Bank admits there are less than 450 claimants. Conservatively estimated at $50,000 each, the claims of 450 borrowers would add up to $22,500,000 payable as penalties. The number of borrowers with claims could conceivably run into several thousand.