Compensation bill of $850m looms for gouging

The compensation that banks are preparing to pay for fees they charged over services never provided is racing towards $1bn.

The total payout to customers of AMP, Commonwealth Bank, ANZ, National Australia Bank, Westpac and other large financial institutions could quadruple to $850m.

The compensation that the banks are preparing to pay for fees they charged customers for services never provided is racing towards $1 billion, as the financial services royal commission yesterday exposed new details of fee gouging.

The corporate regulator has revealed the total payout to customers of AMP, Commonwealth Bank, ANZ, National Australia Bank, Westpac and other large financial institutions could quadruple to $850 million from the more than $200m already paid to customers caught up in the “fees for no service” scandal.

News of the soaring bill came as the royal commission heard evidence that NAB misled the Australian Securities & Investments Commission over its fee scandal and details of how its bid to play down the problem was taken all the way to chief executive Andrew Thorburn.

The commission also extracted evidence from two NAB executives about how the bank went to great lengths to keep charging hundreds of thousands of customers fees where little or no service was provided.

Smaller banks and wealth managers set to join Australia’s biggest financial institutions on the compensation roll call include StatePlus, Mark Bouris’s Yellow Brick Road, Bendigo and Adelaide Bank’s financial planning business and VicBank. Other companies are expected to join the hitlist, as ASIC rolls out its countrywide investigation into the endemic rort, which is forcing the wealth industry to look back over the past decade and review ­financial advice and fees charged.

“If all of these provisions are paid in full, fees for no service ­remediation may exceed $850m,” ASIC said yesterday.

AMP, which had its share price and reputation obliterated as the royal commission picked through its attempt to conceal its habit of charging fees for no service, last month told the regulator its ­expected remediation bill could explode to $360m, as it uncovered reams of evidence detailing poor financial advice.

While CBA is still the “gold medallist” for fees for no service, with an estimated total bill of $143m, AMP’s mega-provision could place it in the lead.

NAB has already put aside an extra $65m in potential compensation on top of the already paid or offered $7m. NAB’s super business is separately estimated to owe $103m. ANZ is expected to repay ripped-off customers close to $60m.

Illustrating the high level of alarm about the depth of bad ­behaviour uncovered at the banks, ASIC has also been forced to create a fact sheet for financial institutions on how to compensate customers and what the regulator expects from them when they discover they have done something wrong.

NAB is facing the threat of more payouts, after its executives spent the past two days at the royal commission attempting to avoid putting the bank on the hook for tens or hundreds of millions of dollars more in compensation for the charging of a so-called adviser contribution fee.

NAB’s former head of super, Paul Carter, this week claimed that even though the fee was called a fee it was actually a commission, which would spare the bank from having to refund customers who did not receive any service in return for paying the fee.

Yesterday, NAB’s second witness, the former chairwoman of its super trustee company, Nicole Smith, also said it was a commission — but that it “would stop” when legislation banning the payment of commissions to advisers came into force in 2013.

In a further blow to the bank at the commission, its legal team lost a bid to keep from public release details of secret negotiations with ASIC over the fee scandal.

NAB’s counsel, Neil Young QC, told commissioner Kenneth Hayne that making public the document, a letter to ASIC from the bank, would be an “unnecessary public revelation of the various concessions and compromises” that NAB had put forward in its bargaining with the regulator.

Mr Hayne was unimpressed by the arguments.

“In the circumstances, I think there should be no non-publication direction,” Mr Hayne said.

Ms Smith said NAB “might be a bit slow” at remediating customers, but it aimed do the right thing by them.

“It has taken us too long to get to the remediation point in two instances,” Ms Smith said.

Counsel assisting, Michael Hodge QC, asked why it had taken NAB so long.

“I don’t really know the answer to that,” Ms Smith said.