A tailor pushing $122 million in home loans, gym owners assessing peoples’ finances, paper envelopes filled with cash bribes, and a bank chief executive revealing his own customers are getting a raw deal.
And that was just four days.
It was an astonishing first week of public hearings at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, better known as #BankingRC.
Things started badly for NAB. Then they got worse.
The commission heard NAB’s Introducer Program rewarded people such as solicitors and accountants for pushing customers towards its home loans. It was a program that got out of control in greater western Sydney.
Just one “introducer”, believed to be a tailor, pushed $122 million in home loans and reaped $488,000 in fees. A gym owner was another key introducer.
The benefits became so lucrative that cash bribes in paper envelopes were being given to brokers to help them overlook fraudulent or missing details in applications — to keep the fees coming.
Whistleblowers called out the fraud, but NAB did not notify the regulator until months after they were required to.
How bad are our banks?
The calls for a full banking inquiry have been relentless for years, from a broad section of the community — farmers, small business and households. So just how bad are the banks?
“It says ‘lack of due diligence’,” commissioner Kenneth Hayne noted, grilling NAB executive Anthony Waldron. “Is it the introducer? Is the banker? Is the NAB?”
Mr Waldron, nervous throughout, answered quickly: “It’s NAB.”
Not only did NAB delay notifying the regulator, it discussed creating a “straw man” — a potentially fallacious example — to deceive the regulator.
The nation’s biggest bank, the Commonwealth, was also exposed in embarrassing ways.
The commissioner flagged a focus on the “conflicted remuneration” of mortgage brokers at the start of the process a month ago. This week, allegations of rampant conflicts of interest and hidden fees paid on mortgages were revealed.
More than half of Australian home loans are funnelled through mortgage brokers.
Senior counsel assisting, Rowena Orr QC: “The larger the loan, the bigger the commission?”
CBA executive Daniel Huggins: “That’s correct.”
ORR: “The longer the loan, the bigger the commission?”
HUGGINS: “That’s correct.”
Brokers are failing to clearly disclose upfront, on-going fees and incentives to stop people paying off their mortgages sooner.
“We’ve acknowledged that there is a conflict … the larger the loan, the longer it takes to pay off — there is a conflict between the customer and the broker,” Mr Huggins said during a long day in the witness box.
At the same time, a surprising and previously confidential submission from Commonwealth Bank chief executive Ian Narev to a review of retail banking revealed customers who use mortgage brokers are losing out through fees, interest and incentives.
“The use of loan size, linked with upfront and trailing commissions for third parties, can potentially lead to poor customer outcomes. We would support … measures on incentives related to mortgages … for example the de-linking of incentives from the value of the loan,” the submission says.
Customers going through brokers have a smaller deposit as a percentage of the value of the loan (known as loan-to-value ratio), pay more in interest and pay down their loans more slowly.
Despite the Commonwealth Bank agreeing flat fees would stop brokers boosting the size of loans and suggesting slower pay-down strategies to increase their trailing commissions to maximise profit, it is not fixing the system.
A report from the competition watchdog piled on the bad news, saying new home loan customers pay less than existing ones.
The commission has been swamped by more than 1,800 public submissions, more than two thirds of them concerning banking — and most on consumer finance.
Next week we will hear more about dodgy car loans and Australia’s addiction to credit cards.
Media player: “Space” to play, “M” to mute, “left” and “right” to seek.
Hayne brings levity to proceedings
One surprising element has been the dry wit of Commissioner Hayne. The former High Court judge has injected some levity when dealing with his team, but has dished out frustration at Big Four employees failing to answer clear questions.
With the commission falling behind its schedule, he announced he would bring the start time from 10:00am to 9:45am.
“Anybody game enough to suggest otherwise?” he asked with a raised eye.
The next day he agreed to a short break.
“Probably advisable, seeing as I’ve got everybody working ‘forced march’ hours,” he added.
When asked about how to submit a document to the commission, either separately or with annexures, he paused before answering: “It’s a matter of supreme indifference to me.”
The commission continues next week.