By Daniel Ziffer
Billions of dollars were stolen. Dead customers were charged. Worthless products were sold to millions.
- The final report of the Banking Royal Commission was released two years ago
- Of its 76 recommendations, only about one-third have come into law
- Some key protections have been downgraded or abandoned
Two years ago, the final report of the banking royal commission exposed a culture of rapacious greed, of profits and shareholders being put before customers and the law.
But there has been slow progress to fix the scandals exposed.
The aftermath of the 2018 probe killed the careers of the chief executives and chairs of several of Australia’s top banks: AMP, NAB and Westpac. Court battles against IOOF, NAB, the Commonwealth Bank, Allianz and more have been won, lost or are ongoing.
But, by some counts, barely one-third of Commissioner Kenneth Hayne’s 76 recommendations have passed through to become law. Some have been abandoned. And the very first recommendation — to leave existing responsible lending laws unchanged — is set to be shredded, along with those laws.
“The average person out there thinks everything’s been solved. ‘Oh, we had a royal commission. Oh, they charged dead people’. There was all this ‘oohing’ and ‘aahing’,” said consumer advocate Lena Anderson.
“Now (people) think, ‘Well, the Government’s looked after it’.”
Ms Anderson lost her home after an unauthorised $22,000 withdrawal made by her bank escalated into a legal battle costing over a million dollars. She fought Westpac in court, all the way to the High Court, representing herself and losing each time.
Now a representative for others in dispute with their lenders, the 60-year-old said the bad behaviour towards customers that propelled the royal commission into being is back.
“In my case, and in a lot of other cases in the community that I’m involved in, they’re actually behaving worse because they haven’t been scrutinised by the commission,” she said.
“They feel they’ve gotten off scot-free.”
The reality isn’t that simple, for consumers or the banks.
The year-long Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry began in early 2018, after years of high-profile scandals involving our biggest banks created an unstoppable momentum for an independent inquiry.
Despite running through topics as broad as consumer finance (mortgages, credit cards and car loans), superannuation and insurance in just two weeks of hearings each, it exposed criminal behaviour, jaw-dropping scandals and billions of dollars of rorts.
The 76 recommendations from Commissioner Hayne were tabled by the Government two years ago and began being passed into law.
Some of the most contentious changes were scheduled to be made law at the end of 2020 — something consumer and legal groups agreed was an ambitious timetable, given the amount of legislation required.
But two separate tranches of laws were delayed by six months each. The need for the industry to recover from the pressing impact of the COVID pandemic was the stated reason when the delay was announced in May.
It later came to light that there had been a concerted lobbying effort from the banking industry — including commission witnesses who oversaw scandals that saw bank managers jailed for fraud — to delay the implementation of the recommendations.
‘Insult’ to witnesses
Cat Newton is a senior policy officer at the Consumer Action Law Centre, which helped many of the witnesses who appeared at the royal commission. She’s deflated by the delays.
“What we don’t want to see is another two years go by and all of the lessons of the royal commission are lost,” she said.
“Frankly, it’s an insult to banking victims across Australia and for all the people that gave evidence to the royal commission that two years on we’re still waiting for those reforms to be implemented.”
Powerful personal stories told from the witness box exposed systemic problems in the Australian financial system.
Baptist Minister the Reverend Grant Stewart spoke on behalf of his adult son, a then-26-year-old with Down syndrome, who was aggressively and unwittingly sold several insurance policies he did not understand after answering an unsolicited call.
While thankful for stronger laws against unsolicited financial product sales pitches, he has written the Treasurer to urge for more consumer protections rather than less.
Indigenous people were sold funeral plans for babies. A gambling addict was given credit card limit increases, even after he pleaded with the bank to stop offering him more debt.
But many of the laws that could prevent these problems happening in future are stalled, and some will not ever make it.
“The majority of the 76-recommendations are still yet to be implemented and put into effect for the benefit of consumers. And that’s a really disappointing lack of progress after two years,” said Josh Mennen, principal lawyer and spokesperson for the Australian Lawyers Alliance.
“And in fact some of those recommendations have either been abandoned or defied.”
Analysis by the Consumer Action Law Centre suggests just 27 of the 76 recommendations have been implemented. (Of those, two involved doing nothing, for example, keeping both the Australian Prudential Regulation Authority [APRA] and Australian Securities and Investments Commission [ASIC]).
CALC found there are 45 waiting for legislation delayed by the coronavirus pandemic.
However, the Australian Banking Association (ABA) argues 44 of the recommendations are complete, with four currently before Parliament and 27 under consultation by the Morrison Government.
The gap between the competing analysis is to do with how fully some of the recommendations have been implemented.
Essentially, where a recommendation has been ‘watered down’ or changed from what Mr Hayne directed, it has been marked as a fail by the centre, but a pass by the ABA.
Dead on arrival was a ban on how mortgage brokers get paid — commissions — or brokers being subject to financial planning laws.
Reforms to lending at the ‘point of sale’, like car yards, appear to have disappeared.
And there’s no update on a much-mooted ‘compensation scheme of last resort’ for consumers who are the victims of misconduct by companies or people that go bust.
Of Commissioner Haynes’ 76 recommendations for reform, 54 of them were directed at Government and 40 of those needed new laws. (The remainder of the recommendations were split between regulators, 12, and industry, 10).
The Treasurer’s office said that around 70 per cent of the recommendations directed to Government had been implemented, despite the disruption of COVID.
The final tranche of legislation turning recommendations into law is set to be introduced by June 30.
In December 2020, a press release noted the passing of legislation relating to 20 of the recommendations, including strengthening anti-hawking provisions to prevent “pressure selling” to customers, trying to prevent inappropriate sales of add-on insurance, and making the handling and settlement of insurance claims a ‘financial service’, thus requiring insurers to “behave honestly, efficiently and fairly” as they go through claims.
“The Government remains focussed on completing implementation of the remaining recommendations of the Hayne royal commission,” the release read.
Our key regulators felt the heat of scrutiny at the royal commission. Timid in taking on the big banks, they were also desperately under-funded compared to similar nations and thus reluctant to take on expensive and risky court action.
After being embarrassed and given substantial funding boosts, they acted.
The Australian Securities and Investments Commission (ASIC) had a new mantra: “Why not litigate?”. Instead of shying away from court action it would have it as a first option.
The trio who forced the banking royal commission
NAB paid a $57.5 million penalty for false and misleading representations to superannuation members.
ASIC is in court against insurers Youi, TAL and Allianz on separate issues.
It even secured convictions against the Commonwealth Bank over ‘hawking’ insurance — selling unsolicited financial products — in the first criminal charges brought against a major financial institution since the royal commission.
“A mixed success. There were a few big wins and there were a couple of big losses,” Swinburne Law School senior lecturer Helen Bird observed.
“Poor ASIC in a sense has been hit in both ways. It’s good that it’s been given the budget, given the means to do it, but at the same time not being given the opportunity, time and patience that this kind of detailed and complicated litigation requires.
“It can’t all be done in the year or even two.”
A case against a major bank can take between four to six years to get to court.
Kenneth Hayne referred 13 cases for ASIC to look at. Four are in litigation (TAL, Colonial First State Investment MySuper, CBA/Colonial First State Essential Super and Allianz Expedia), one ended with NAB’s $57.5 million civil penalty and another when the court declared Youi had breached its “duty of utmost good faith”. Others remain under investigation.
APRA received 12 referrals about 10 companies. It has not gone to court as much, but put extra conditions on the licences of half of those firms. An example is Avanteos, which charged fees to thousands of deceased superannuation members.
Why haven’t they rushed to court (much)? Efficiency.
“Where they had the opportunity to work most effectively is through capital requirements (asking institutions to hold more cash) and conditions on licenses,” Helen Bird explained.
“They’re going to do that straight away because they can do that without being interfered with.”
Banks haven’t been sitting around just waiting for the legislation to pass.
Hundreds of millions of dollars has been spent, particularly on new IT systems, to prepare for what the recommendations suggested.
Some fixes — like stopping penalty interest going on top of farm loans already behind in repayments — were made unilaterally by the banks.
“It’s been an extraordinary effort already, and there’s a lot being done this year,” the Australian Banking Association’s chief executive officer Anna Bligh told the ABC.
“We’re talking about organisations with a national footprint, extensive digital platforms, (all up) there’s 140,000 staff. So it’s not a simple question of just redrafting legislation.”
Each major bank formed a team, headed by a senior executive, to implement the recommendations. But the impact of COVID-19 — “many banks were getting more calls in a day than they’d normally get in a month,” Ms Bligh said — diverted the focus.
Two years since the report, the head of the banks’ lobby group said the sector was on its way to regaining the trust of Australian customers.
“It never happens overnight,” she said.
“I certainly hope what Australians saw from their banks in 2020 reassured them that banks heard the message of the royal commission and they’re acting on it. But they’ll want to see it in 2021, 2022 and every year.”
As work continues to embed fixes for the problems exposed by Commissioner Hayne’s inquiry, the chief executive of the association said the vital role banks play in the national economy means getting regulation right is vital.
“But giving customers best and fairest treatment is something that has to go beyond legislation — it has to be ingrained in the DNA of the organisation,” Ms Bligh said. “That’s the message that banks took out of the commission.”
More legislation is set to hit Parliament, turning recommendations into law, this year.
But Commissioner Hayne’s very first recommendation was to leave the National Consumer Credit Protection Act alone. A bill to roll back responsible lending laws now has everyone’s attention.
“It is deeply concerning,” said Cat Newton of the Consumer Action Law Centre.
“These are really basic, sensible laws that we introduced after the global financial crisis to make sure that people, when they’re getting a loan, are able to repay them without hardship.”
Existing protections failed Lena Anderson, and she’s concerned about future problems caused by removing even those basic provisions.
In 2014, Westpac paid a lawyer’s claim for $22,000 — which Ms Anderson says she didn’t owe, was disputing and hadn’t even gone to court — without her knowledge or consent.
It then added it to the principal of her loan.
When she finally got the money back, penalty fees, enforcement fees and legal costs had seen the figure balloon 20 times. She fought the bank in court, all the way to the High Court, representing herself and losing each time.
“You don’t sleep, you don’t eat, and you can’t spend time with family, and you can’t have conversations with people,” Ms Anderson said, recounting the experience.
“Your whole life is upended and that that was five years for me.”
The bank, through its subsidiary Bank of Melbourne, said it had worked to try and settle the matter since 2014.
Ms Anderson took the issue to what is now the Australian Financial Complaints Authority and the courts.
“The courts decided in favour of the bank on all counts,” the bank said in a statement.
Two years since the final report, Lena Anderson foresees more people ending up in her situation.
“The winding back of the responsible lending laws … it’s as big a step back as the commission was forward,” she warned.