In June 2015, the national government led by Sir John Key created the law that would be used this year to launch a class action lawsuit against ANZ by mortgage borrowers.
Key, the current chairman of ANZ, was at the helm when Section 99 (1A) of the Consumer Credit and Finance Contracts Act (CCCFA) came into effect as part of a campaign to get lower level lenders to treat vulnerable borrowers decently.
The clause required lenders to repay all borrowing costs, i.e. fees and interest charged, during a period during which they violated loan disclosure laws designed to ensure borrowers were fully informed of their loans.
But in May 2016, ANZ realized that it had made errors in the loan modification letters sent to thousands of customers between May 2015 and May 2016, potentially forcing it to pay a large sum. to these borrowers.
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That month, the banks launched an intense lobbying operation to change the law and make the changes retrospective.
ASB, which also made disclosure errors, faces the same class-action threat as ANZ, with both banks defending action against mortgage borrowers seeking reimbursement of the cost of their borrowing, a boon that could help them pay off their mortgages sooner.
Westpac also revealed in early November that it was “revising its processes” under the CCCFA, which “could lead to customer remedies, regulatory action and litigation.”
The lobbying operation was carried out by the New Zealand Bankers’ Association.
ROBERT CUISINE / STUFF
Financial Markets Authority Managing Director Rob Everett and Reserve Bank Governor Adrian Orr present the findings of their joint review of the conduct and culture of banking in New Zealand. First published in 2018.
On May 17, 2016, the association wrote to the Ministry of Enterprise, Innovation and Employment (MBIE) to protest that section 99 (1A) was unfair because it meant that banks “Must reimburse the loan costs in all situations, even if they have corrected the non-disclosure or there is no material damage to the borrower”.
The letter from the association’s executive director at the time, Karen Scott-Howman, was unearthed by Auckland lawyer Scott Russell, who is taking the case with a contentious loan from backer LPF, who supported the class action lawsuit by kiwifruit growers against the Ministry of Primary Industries.
Russell said the ANZ lobbied parliament to change the law after realizing in 2016 that the bank had violated its disclosure obligations.
“They only told the Trade Commission in June 2017 that they made the mistake, more than a year after pressuring parliament to change the law. They didn’t tell their own customers that they made the mistake until a year later.
Scott-Howman’s letter linked the association’s concerns not to ANZ’s mistake, but to a case in which payday lender Cashinaflash.co.nz reimbursed interest and fees to borrowers who paid loans. annualized interest rates of up to 584 percent term loans.
ANZ said it would not comment as the case was before the courts.
Scott-Howman argued that cases of accidental non-disclosure or false disclosure were inevitable and that section 99 (1A) could have serious and harsh consequences for a lender.
She called for “improvements” in the law to ensure that lenders are not required to repay the cost of borrowing when they have corrected their own mistakes and there has been no “material damage” to borrowers.
In June of the same year, the association met with MBIE officials and urged that changes be made and that they be backdated.
In November 2016, MBIE released a discussion paper revealing the June meeting. The document proposed the change in the law desired by banks and recognized the role of banks in prompting scrutiny.
However, he noted that Section 99 (1A) was a strong incentive for lenders to comply with the law, and that the Trade Commission had spoken positively to MBIE officials.
It appears at this point that neither the commission nor the government knew that the ANZ had posed a historical disclosure problem.
The commission’s settlement with ANZ confirmed Russell’s claim that it was not until June 2017 that the commission was made aware of the problem by the bank.
Aucklander Anthony Simons has a home loan with ANZ and is one of the plaintiffs’ representatives in the Russell class action lawsuit.
He believes he has indeed been denied the opportunity to have a say in changes to the law by lobbying from the Banking Association.
Simons said that when the law change was being debated, he had no idea what was going on.
Even if he had, he would have had no idea that he was a borrower who could lose financially if the law were changed and made retroactive.
Indeed, even when ANZ admitted in May 2018 that it had made a mistake to customers, it said it failed to explain the possibility that it had a legal obligation to repay all interest paid. during the period in which the bank had failed in its obligations to them.
“People like me would have had no idea what was going on,” Simons said.
Simons said he would have gotten involved had he been alerted to the proposed law change and its importance to him personally.
“As far as they’re gone, it’s like cheating,” Simons said.
When in mid-2018 ANZ announced it would make payments of around $ 10 million to customers, Russell said borrowers who contacted their banks to try to figure out what had happened had not been informed.
“A lot of them contacted their bank managers, who couldn’t tell them what they were being paid for,” Russell said.
He said it seemed the bank was trying to tell borrowers as little as possible.
In March of last year, ANZ pledged to pay a $ 29.4 million to borrowers on errors in a settlement with the Trade Commission.
The Bankers Association’s submission to the MBIE on the 2016 discussion paper showed the true extent of the threat to banks with historic disclosure errors.
He used an “example” in which a bank had an unforeseen error in the template it used to generate loan modification letters for 30,000 home loan borrowers with the interest amount listed at 0.559% instead. by 5.59%.
Under current law, the bank would “arguably” have to repay $ 670 million in fees and interest, assuming an average home loan of $ 400,000, the association said.
When Labor took power in 2017, then Trade Minister Kris Faafoi continued the process of changing the law.
A document he presented to Cabinet in June 2018 showed that the association had been joined in its lobbying by law firms.
Organizations like the Citizens Advice Bureau, which represented the interests of vulnerable borrowers, opposed the change.
In March of last year, the law was amended, giving lenders the right to go to court to seek redress for the consequences of failing to comply with disclosure obligations, but not retroactively.
Roger Beaumont, chief executive of the NZBA, said section 99 (1A) was introduced quickly in 2015 and how it could be interpreted “could lead to undue consequences for failure to meet certain disclosure requirements. customer information “.
“We did not agree with this interpretation and, therefore, we sought to mitigate the risk through further reform of the law on behalf of our members.”
Russell said the well-funded association’s lobbying showed the political power of the banks.
“It really is an unfair playing field. Very well endowed banks versus consumers who place their trust in banks, ”he said.