We need tougher laws, not more class actions

Clogging the courts with class actions won’t alter bank behaviour. Instead we need to get tougher laws through the Senate.

Slater and Gordon class actions head Ben Hardwick speaks to the media at the firm's offices in Melbourne earlier today. Picture: AAP

Law firm Slater and Gordon is to launch “a series of class actions” off the back of evidence revealed at the banking royal commission, this will not be a fix, this will be a fee bonanza.

We are talking about 20 potential class actions coming down the line centred heavily on the issue of poor rates of return in cash accounts.

Yes, the cash account issue is a scandal but clogging the courts with class actions will

not change behaviour in the big banks and insurers. We need tougher laws.

Sales executives inside the banks and insurance companies must have a deterrent. They don’t fear class actions, they fear individual penalties and prison.

Just now when class actions succeed, lawyers get 40 per cent of any cash awarded. In turn, the affected companies add their payout costs to a list of forthcoming “abnormal items” in their annual accounts and the people who were cheated or abused get a small cheque in the distant future.

In other words it is business as usual. At their very best class actions have been useful though, increasingly, that usefulness is being eroded.

The recent squalid rush over AMP where five fully funded actions were launched separately is perhaps the best example — even the jurists are now complaining about this feeding frenzy.

In a remarkable blast at competing law firms (and their funders) a statement from the NSW Supreme Court judges said: “Those bringing the action have their own self-interests: any funders for their percentage take, lawyers for their professional fees, and, sometimes, lead plaintiffs for any special position they can negotiate in the overall arrangement.”

Meanwhile, something that could stop the rot — a package of laws which would toughen up penalties — is being held up in the Senate.

Roughly a year ago, Minister Kelly O’Dwyer — who at the time managed what has become a disbanded portfolio of financial services — put forward tougher legislation to increase penalties for bad behaviour in superannuation. She followed that up with more legislation in April this year which aimed to broaden penalties across the financial services sector.

The combined legislation had real teeth — it carried an expanded ability to ban advisers, to increase civil penalties and to impose a maximum of ten year’s imprisonment for individuals breaking the Corporations Law.

Re-cap today’s banking royal commission developments via our live blog

Now pressure is building again to move those reforms forward. Nationals Senator John Williams, a key player in getting the Royal Commission off the ground, has said he wants to activate the legislation.

Williams told a super conference a few days ago he specifically supported planned changes to the Superannuation Industry Act that would see criminal penalties for executives who failed to match their obligations in super.

In many way the failings of the financial services system — especially in super and insurance revealed by the bank inquiry — are simply too entrenched and varied to be handled by random class actions.

There may be up to 5 million people involved in these actions and the cash value might top a billion dollars — it’s a national issue requiring national action.

The class action initiatives get great public attention. Even to the point that betting agencies are now running odds on which banks might have to pay out the most in compensation — the latest numbers from Sportsbet put CBA at $1.65.

But it is tougher laws that will cut down bad behaviour; a slew of class actions will do no such thing.