ME Bank slapped by Banking Code Compliance Committee for COVID redraw debacle

The banking industry’s self-appointed watchdog has sanctioned ME Bank for serious breaches over a home loan redraw blunder at the height of the COVID-19 crisis.

ME Bank has been sanctioned after it changed the rules of its redraw facilities without informing customers.

The banking industry’s self-appointed watchdog has sanctioned ME Bank for serious and systemic breaches of the banking code of practice over a home loan redraw blunder at the height of the COVID-19 crisis.

After reviewing ME Bank’s move in April last year to abruptly change the rules of its redraw facilities without notifying borrowers, the Banking Code Compliance Committee found the lender’s communications to customers were “poor and ineffective”.

The watchdog’s inquiry was launched after the industry super fund-owned ME Bank, which is in the process of being acquired by Bank of Queensland for $1.3bn, without warning reduced customers’ redraw limits and transferred funds from their redraw accounts into their mortgage accounts, in a move that left borrowers unable to access their own money.

After a hefty backlash, it quickly unwound the policy and offered to return redraw limits to the original amounts.

“ME Bank’s failure to rectify longstanding system issues was a contributing factor to its poor conduct at the time it made the adjustments to customers’ redraw amounts,” the BCCC’s independent chairman Ian Govey said.

“It was imperative that ME Bank notified customers prior to making any adjustments to their redraw facilities, especially given the changes took place when the COVID-19 pandemic was significantly affecting customers’ livelihoods.”

ME Bank should have taken into account the impact its lack of communication would have had on customers at that time, he added.

The bank’s CEO Jamie McPhee resigned in the aftermath of the scandal, but said his decision to move on was unrelated to the redraw controversy.

Mr McPhee, shortly after his resignation was announced in July, admitted ME got the communication wrong on the redraw change.

The bank should have conducted focus groups to first garner feedback before making any changes, he said.

“Run some focus groups, test and learn … which would have landed well with the customer,” he said.

The banking code’s guiding principles require banks to be accountable and transparent in their dealings with customers.

After considering the seriousness of the breach of the code, the watchdog deemed a naming and shaming of the lender on its website and in its annual report was an appropriate sanction.