Question

The “mortgage introducer” program used by National Australia Bank and many other Australian banks was heavily criticized during the 2018 Banking Royal Commission.

In about 200 words, provide insights as to why this initiative in mortgage lending may have adverse consequences for a bank's risk exposure.

Answer 1

The Australian Securities & Investment Commission (ASIC) instituted a lawsuit in August following investigation by the Haynes royal commission and accusations that NAB violated credit laws on 297 loans, written after referrals from unlicensed introducers. Introducers are people who charge for reffering the customer to a bank, but can only transfer the name and contact information of the customer, since they does not have a credit licence.

In some cases, ASIC claimed that a group of introducers working with NAB had continued and given records, includingcompleted applications for loans, tax returns and even false pay lips. The bank admitted to 255 of the 297 violations of the national consumer protection act which the ASIC alleged in a statement filed by NAB with the Federal Court this week. NAB admitted that some of its clients were exposed to the risk of unfair loans arising from the conduct.

The statement made by the Bank to the court also pointed out the steps it had taken with the scandal, including the sacking of bankers and eventually the scrapping in March of payment references by introducers. The bank and the regulator are now going to enter into discussions on the remaining 42 suspected breaches, which it did not accept. In the hearings scheduled for the next year, no penalties have been levied by Federal Court Judge Michael Lee, whodetermines the fines to be paid by the bank. Under law, the maximum penalty per breach amounts to $1,7 million to $1,8 million, or $433 million for 255 breaches.

However, Daniel Crennan, deputy chairman of ASIC stated in August, the maximum penalties went far beyond what a court would impose, saying that such numbers were quite hypothetical — they are not the kind of penalty which a court would actually impose. The chief consumer banking customer officer of Nab, Mike Baird, stated that the bank had announced the closure of its introducer programme and was compensating a effected customers."As we said earlier, the programme's risks were unavoidable and the consumer and group expectations were ultimately declined," said Mr. Baird.

Because of the goods and services we offer, we want clients to have the trust to come to NAB, not because a third party got a payment to recommend us.A spokesman for ASIC said the regulator has been satisfied with the response to the allegations by NAB so far, but "a range of problems still have to be resolved." ASIC started the proceedings inorder to illustrate the risks faced by consumers when banks engage with unlicensed third party introducers engaging in credit activities.It is critical that these risks are recognised by the credit institutions and they fulfil their obligations to avoid poor customer outcomes," the spokesman said.

"'The parties work hard to find an agreement on such outstanding issues.Any fines levied would be up to the court, and the ASIC would not speculate on the outcomes," he said. ' Between 2013 and 2016, NAB paid approximately $ 100 million in its introducer programme as commissions that generated $24 billion in loans.