NAB facing $15m fine after court finds bank guilty of accepting unlicensed loan referrals

NAB’s culture of rewarding branch and mobile bankers for the number of loans they sold ‘incentivised them not to follow regulation’.

NAB faces $15m fine for accepting referred loans. Picture: Hollie Adams/The Australian

NAB is facing a $15m fine after a court found it accepted information to be used for home loan applications from third-party referees that did not have a credit licence, a practice unearthed during the Hayne Royal Commission.

In a federal court judgment handed down on Monday, NAB admitted it breached the National Credit Act at least 521 occasions between 2013 and 2016 by failing to adequately police its ‘spot and refer’ introducer payments program.

The program allowed individuals to receive a loan commission if the individual refers NAB to someone who takes out a mortgage.

However, national credit regulation prevented any individual who did not have an Australian Credit Licence from providing NAB with any more information than a customer’s name and contact details.

ASIC commenced proceedings against NAB in August of 2019 after it found 16 bankers at NAB accepted information from 25 unlicensed individuals, including personal bank statements, credit card details and pay slips.

On some occasions, this information was false.

In his judgment, Justice Michael Lee said that NAB’s culture of rewarding branch and mobile bankers for the number of loans they sold incentivised them not to follow regulation.

“During the Relevant Period, NAB had an incentive program, known as the Star Sales Incentives (SSI) scheme,” he wrote.

“The same SSI was paid regardless of whether a loan was introduced to NAB through an Introducer or by another NAB employee.

“Because of these financial incentives and inadequate controls, it was difficult for NAB to prevent and detect fraud from loan applications originating from the program.”

The commission the introducers received also encouraged misconduct – the court found that $929,403.67 in commission was earned by the introducers from 260 loans, with payments averaging approximately $3,500.00.

Overall, the program generated $24bn in loans between 2013 and 2016.

Justice Lee considered ASIC’s proposed $15m penalty appropriate, but said practices at the bank also had to change to avoid such a mistake occurring again.

“The conduct engaged in by NAB as a corporate entity was not deliberate. But this means that the deterrence needs to be such as to motivate changes to the systems underlying the contravening conduct,” he wrote.

ASIC Financial Services Enforcement Executive Director Tim Mullaly told The Australian that although the $15m penalty would act as a disincentive towards letting this happen again, NAB and the major banks had more work to do in updating their systems.

“I think NAB and the other banks have still got to do more to make sure their systems across the boards are sufficient so that consumers are not put at risk of harm,” Mr Mullaly said.

“ASIC is well equipped to investigate and this outcome, along with other recent outcomes, should indicate the significant willingness of ASIC to seek financial penalties from the court when these large institutions breach the law.

Earlier this month an ASIC investigation led to ANZ being hit with a $10m fine for 300,000 instances of unconscionable conduct.

During the Hayne Royal Commission into the banks NAB explained that it did not identify problems in its introducer program until 2015 as there was no manager of the program before 2016, a lack of systems to monitor new introducers, and the concentration of control of the program in the hands of bankers.

A subsequent internal review resulted in the resignation or termination of 20 NAB bankers.

ASIC has also banned two former NAB employees from engaging in credit activity or financial services in 2018 due to their acceptance of false loan documents in mortgage applications.

A former NAB branch manager was also hit with a seven year ban in 2019, while another was imprisoned for 12 months in late 2019 for making false or misleading statements to NAB.

NAB Group Executive for Legal and Commercial Services Sharon Cook said the program was terminated in 2019 and a remediation program has been established.

“NAB has acknowledged that the Introducer Payments Program had inherent risks and ultimately fell short of customer and community expectations,” she said.

“We ended the Introducer Payments Program in October 2019 and in November 2017 we established a remediation program, which has paid about $5 million to impacted customers.”