Bankers go bonkers over the definition of deception

When is a fee charged to customers for no service not a fee-for-no-service and does that make it a commission?

When is a fee charged to customers for no service not a fee-for-no-service and does that make it a commission? According to the royal commission testimony of National Australia Bank’s chief customer officer Paul Carter, it’s not a fee-for-no-service if that service is the promise of being able to “access” that service, whether or not the customer actually uses — or knows about — the service.

It turns out, the definition of whether an instance of customer gouging is a “fee” or a “commission” could end up costing NAB tens or hundreds of millions more in compensation.

The royal commission yesterday spent hours encouraging Mr Carter to explain what exactly customers were getting when they were automatically charged the so-called “plan service fee”. That fee was charged to NAB’s superannuation customers at a rate of up to 0.44 per cent of assets — enough to push it into the hundreds, or thousands, of dollars for a customer.

That fee was not in exchange for any actual service, but for the opportunity to “access” an adviser who could provide “general” advice, such as basic information about investments and insurance. This is distinct from “personal” advice, in which information is tailored to a specific individual based on what would be in their best interests.

Two weeks ago, NAB was forced to promise to refund $87 million to more than 300,000 customers who were charged hundreds of dollars for the service fee after the corporate regulator raised concerns members were not told they could opt out of the fee.

While NAB was adamant, at the time, that this did not constitute a fee-for-no-service issue (such as the one that smashed AMP’s share price to smithereens a couple of months ago) it could not tell The Australian how many customers, if any, actually used the services made accessible by the planned service fee. The bank did not collect that kind of data. In fact, only 2 per cent of NAB’s 305,000 super customers entitled to call up the bank and cancel the plan service fee actually did. NAB painted this as proof that 98 per cent of customers valued the service fee. Seen another way, it was evidence 98 per cent may not have known they were being fleeced.

At the royal commission, it was the turn of another of NAB’s fees — the so-called “adviser commission fee” that sucked up as much as 6 per cent of a saver’s super contributions — to be the subject of unclear definitions.

To Mr Carter, the adviser commission fee was not a fee but a commission, he told the hearing.

“Why do you say adviser contribution fee is a commission?” counsel assisting the royal commission, Michael Hodge QC, asked. Mr Carter dithered.

Which led Mr Hodge to explain it for the audience: “But there’s an important difference, isn’t there, between a commission and a fee for service, which is if it’s a commission and you don’t provide services, then MLC can say and does say ‘We don’t have to refund the money if we don’t provide the service’.”

Mr Carter agreed.