Big banks to offer reform plans to royal commission on consumer lending

ACCUSED of many breaches of the law, Australia’s big banks are today expected to propose to the banking royal commission reforms to their scandal-plagued consumer lending divisions.

ACCUSED of many breaches of the law, Australia’s big banks are today expected to propose to the banking royal commission reforms to their scandal-plagued consumer lending divisions.

The banks were last night rushing to meet today’s 4pm deadline to lodge 25-page responses to allegations they all may have broken the law.

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Closing the first round of hearings in Melbourne last month, counsel assisting the commission, Rowena Orr, QC, invited banks to respond to the accusations that were tabled.

A series of scandals involving the mortgage market, credit cards, car loans and other banking products services were scrutinised in hearings from March 13 to 23.

Counsel assisting the commission, Rowena Orr QC. Picture: Eddie Jim

Ms Orr told commissioner Kenneth Hayne that based on evidence produced during the hearings, it was open for him to find that the banks had breached the Corporations Act and the National Credit Act.

Sources at all the major banks yesterday said they were expecting to meet the deadline to submit their responses.

When the commission formally opened on March 13, Mr Hayne criticised the banks for dragging their feet in preparing detailed lists of misconduct going back half a decade.

One banking insider yesterday said the lenders would need to come to the table with realistic proposals to overhaul their systems after the commission unearthed so many problems.

“(They will) offer constructive suggestions for industry improvement on various matters raised, where appropriate,” the source said, adding that the banks might try to provide detail about how their processes worked and how they complied with the law.

In her closing statement, Ms Orr questioned remuneration structures at the banks.

She noted there were risks tied to the commissions paid to mortgage brokers, volume-based commissions on offer for bank staff and payments for third parties who referred prospective home loan customers to banks.

Ms Orr posed questions around the need to tighten credit card standards and the so-called household expenditure measure — a statistical-based benchmark used in the approval process for many home loans.

She also asked if banks’ fraud-detection processes and conflict-of-interest standards were up to date.

Commissioner Kenneth Hayne. Picture: Eddie Jim

Responding to Ms Orr’s comments, Mr Hayne said he also wanted the banks to tell him if there was confusion among consumers about who mortgage brokers worked for.

He said there were three important points to clarify.

“Who does the broker act for? That might be seen as an inquiry about fact or fact and law,” he said.

“Two, who does the customer think the broker is acting for? And third, who does the lender think the broker is acting for?”

The next round of public hearings will begin on April 16.

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