Big four didn’t disclose term rollover rates: FOI

ANZ, NAB and Westpac joined CBA in failing to tell term deposit customers what rate they would get on rollover.

The big four didn’t tell term deposit customers what rate they would get on rollover.

ANZ, National Australia Bank and Westpac joined Commonwealth Bank in failing to tell term deposit customers seeking a safe haven at the peak of the global financial crisis what interest rate they would get after their investment rolled over, The Australian can reveal.

Documents dating from between 2007 to 2009, obtained from the corporate regulator under Freedom of Information laws, show the big four banks did not disclose rollover rates in letters sent to customers whose term deposits were about to mature, exposing them to the risk they would receive a substantially lower rate from advertised offers.

Details of the widespread nature of the practice, which The Australian estimates left customers as much as $1bn out of pocket over five years, comes as the banks today face the first hearing of a royal commission into the sector in Melbourne.

The royal commission, headed by Kenneth Hayne, has asked the banks to file 50-page statements admitting to misconduct or behaviour falling short of community expectations since 2008, but it is not clear whether any of the banks have included the term-deposit shortfall in their confessions.

The Australian has previously revealed the practice left customers, especially those who had signed up at one of the high rates offered as a “special” at the time, vulnerable to a sudden fall in the rate received.

NAB’s online subsidiary UBank and Westpac’s St George also did not disclose rollover rates in letters sent to customers advising that term deposits were about to expire.

Marketing material, also obtained under Freedom of Information rules, shows banks heavily spruiked the high headline rates on offer to customers fleeing sharemarket turmoil, with NAB boasting of “consistently high interest rates”, ANZ promising “a completely predictable ending” and CBA asking “doesn’t steady and secure sound good right now?”

It is estimated to have caused consumer detriment of as much as $1bn over the five years between 2005 and 2010, when the Australian Securities & Investments Commission, under then-chairman Tony D’Aloisio, killed an investigation into the practice.

An ASIC survey found that in 2008, 47 per cent of term deposits that rolled over went from high interest rates to low interest rates.

These lower rates were on average 42 per cent lower than the high promotional rates offered, ASIC found.

All big four banks now disclose rollover rates in the pre-maturity letters they send to term-deposit customers.

Following a request from Mr D’Aloisio, the banks in 2009 handed ASIC the GFC-era sample customer correspondence and marketing materials reported on today by The Australian.

In a letter to bank CEOs, Mr D’Aloisio said he was concerned about banks rolling customers from high rates to low and asked for detailed information about marketing practices and rates on offer, according to a draft obtained by The Australian as a result of an earlier FOI request.

“Deposit products are a priority area for ASIC, prompted by the Global Financial Crisis, the consumer and investor flight to financial safety, and the Commonwealth government guarantee of deposits,” Mr D’Aloisio wrote.

In response, ANZ provided an undated pre-maturity letter telling term-deposit customers that “the deposit will be reinvested automatically at maturity and on each subsequent maturity for a similar term at ANZ’s then current interest rate”.

NAB told customers that if they did nothing, “we’ll assume you’re happy for us to extend your investment for the same term at the interest rate that applies on the maturity date”, an August 2008 sample letter shows.

A NAB spokeswoman said that in June 2012 it changed its correspondence to term-deposit customers “to make sure they can clearly see and understand what their new interest rate will be at the end of their term deposit, and to encourage them to contact us if they would like to make any changes”.

In a pre-maturity letter dated October 2008, the CBA warned customers they “should confirm the current rates on your actual date of maturity to determine the rate applicable to your term deposit as rates may vary significantly from your current interest rate”.

UBank also warned customers that “interest rates can change all the time”.

“But to make sure our rates are as competitive as possible, we review them every single day,” it said in its letter, dated February 2009.

In an August 2007 letter, Westpac also claimed to “review our term deposit rates every week, so you always get a competitive rate when you reinvest”, but did not provide a rollover rate.

Its subsidiary, St George also said it would roll customers over “at the current interest rate available” a January 2008 letter shows.