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ANZ Bank faces $15m + fine for using introducers to sell home loans

The ANZ Bank’s policy of promoting unlicensed ‘introducers’ to sell home loans brokers is to be exposed as in breach of the National Consumer Credit Protection Act 2009 in a proceeding brought by the Australian Securities & Investments Commission (ASIC) in the Federal Court of Australia on 25 November 2021.

The background and the breaches

According to ASIC, the ANZ Bank introducer program was highly successful. But the lending practices fell short of responsible lending practices and were not efficient, honest or fair. These are extracts from the ASIC Media Release (26 November 2021):

  • From 2015 to June 2020, more than 50,000 loans were referred to ANZ through the introducer program, resulting in lending of more than $18.5 billion. In September 2018, the introducer program contributed to approximately 10% of all home loans sold by ANZ’s branch network in Australia.
     
  • The program involved home loan referrals to ANZ from third party “introducers” from various professions, such as cleaners and real estate representatives. The “introducers” were not Australian Credit Licence holders.
     
  • ASIC Deputy Chair Sarah Court said: ‘ASIC is concerned that as a result of this conduct some loans may have been granted by ANZ based on false information and some consumers may have entered into home loans that were beyond their ability to pay.’
     
  • ASIC alleges that between June 2016 and March 2018, ANZ breached consumer protection credit laws by accepting customer information and documents from introducers and other unlicensed individuals when this was not allowed. ASIC also alleges that some of the documents provided were fraudulent.
     
  • ASIC also alleges between November 2015 to June 2020, ANZ breached its general conduct obligations as an Australian Credit Licence holder by failing to take reasonable steps to ensure its representatives did not conduct business with unlicensed third parties and thereby failed to engage in credit activities efficiently, honestly and fairly.
     
  • ASIC is seeking declarations, pecuniary penalties and other orders, including for ANZ to engage an independent expert to conduct a review of ANZ’s existing home loan customer referral arrangements.

The Concise Statement filed in the proceeding, describes the alleged harm as:

  • The licensing regime in the Credit Act, which includes ss 29, 31 and 47, was introduced to address, among other things, concerns that brokers or intermediaries may misrepresent consumers’ financial details so that loans were approved, and commissions paid, when the consumer’s true financial position meant a loan should not have been made.
     
  • By its contraventions of ss 31(1) and 47(1) of the Credit Act, ANZ exposed consumers to: a risk of wrongful conduct by the referrer, such as the provision of false or incomplete information and possible fraud; and the risk of entering into a credit contract that was not suitable for them, including because the consumers may not have been able to repay the loans, or may not have been able to do so without substantial hardship.
     
  • Further, by its contraventions of ss 31(1) and 47(1) of the Credit Act, ANZ also undermined the effectiveness of the licensing regime in the Credit Act, by facilitating unlicensed persons engaging in credit activities in contravention of s 29(1) of the Credit Act.

The National Australia Bank (NAB) precedent

On 19 October 2020, at the suit of ASIC, the Federal Court of Australia ordered the NAB to pay a penalty of $15 million Australian Securities and Investments Commission v National Australia Bank Limited [2020] FCA 1494. Justice Lee provides this excellent outline of how the ‘introducer’ system worked in first paragraph of the judgment:

“A large retail bank put in place a programme whereby unlicensed “Introducers” would “spot” prospective customers and “refer” them to bankers; if the bank then advanced a loan, the Introducers were rewarded by a payment – the bigger the loan, the bigger the reward. There were no uniform processes for selection of the Introducers, no requirement that they have any particular training and no minimum level of due diligence; there was also no relevant formal training for “frontline” bankers, including as to the nature of the information the Introducer could lawfully provide. The programme at times resulted in the bank receiving information and documents about customers from financially interested third parties. At any one time there were hundreds to thousands of these untrained Introducers.”

He then asks, rhetorically “What could possibly go wrong?” before launching into a detailed analysis of the breaches of the Credit Act which resulted in a fine of $15 million for the NAB.

ASIC will use this precedent against the ANZ Bank.

Comments

The ANZ Bank proceeding is directed to protecting home loan consumers against entering into home loans which are ‘beyond their ability to pay’. There are faint echoes of ‘NINJA’ (No Income No Job or Assets) loans which were exposed in the GFC of 2008.

It’s an astute move by ASIC to pursue the lender – the ANZ Bank as it is the source of the loans, instead of the introducers for breaches of the Credit Act.

This proceeding is welcome news for mortgage brokers / finance brokers for several reasons. One is that it forces lenders (particularly the banks) to source loans through licensed brokers. Another is that by cracking down on lenders, ASIC cuts off unlicensed brokers as procurers of loans. And finally, ASIC is supporting Australian Credit Licence holders by enforcing responsible lending standards.

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