The Banking Royal Commission has revealed malpractice. Photo / News Corp Australia
It's a week that has taken even the most cynical observers by surprise.
Former deputy prime minister Barnaby Joyce, once a strident critic, was forced into an about-face on Wednesday. "In the past I argued against a Royal Commission into banking. I was wrong," Joyce tweeted. "What I have heard is so far is beyond disturbing."
The revelations that have come out of the Commission this week have been particularly "sobering" for the banking industry, Australian Bankers' Association chief executive Anna Bligh said on Friday.
"The issues raised have been unacceptable and do not meet the high standards the community rightly expects of banks," she said.
"A stronger range of penalties for misconduct is vital to tackling criminal and unacceptable behaviour by individuals and corporations."
Highlighting the seriousness of the misconduct uncovered, the head of Australia's largest wealth management company has now stepped down — the Commission's first scalp.
AMP CEO Craig Meller resigned on Friday, apologising "unreservedly" after the company admitted to charging customers for advice they never received and repeatedly lying to the corporate regulator.
The stream of disturbing revelations about the conduct of Australia's financial institutions has led to the announcement of a tough new penalty regime that could see bank bosses face up to 10 years in prison.
The Banking Royal Commission held its first round of public hearings from March 13-23, with consumer lending practices of NAB, Aussie Home Loans, CommBank, ANZ, Westpac, St George and Citi under the spotlight.
The second round, focusing on dodgy financial advice, kicked off on April 16 and runs until April 27, with AMP, CommBank, ANZ, Westpac, NAB and their financial planning arms facing a grilling.
With Finance Minister Mathias Cormann now conceding the Commission may need to be extended for another year, it's likely we have only scratched the surface of misconduct in the Australian banking sector.
Here's just some of what we learned so far.
The bribes of up to A$2,800 ($2,981) were paid to a group of employees in western Sydney to wave through loans they knew were based on fake documents in order to "smash targets" and score bonuses, the Royal Commission heard last month.
The syndicate of 11 people, six of them branch managers, allegedly made up fake pay slips, IDs and Medicare cards. In one case, a borrower was told they could borrow A$800,000 when the valuation was just A$450,000.
A whistleblower first raised concerns in 2015 about the bank's "Introducer Program", which generated A$24 billion worth of home loans between 2013 and 2016 and paid out between A$100-A$150 million in commissions for lending referrals to non-bank employees such as financial planners and accountants.
"The whistleblower said the money exchanges hands in cash in white envelopes, usually over the counter," senior counsel assisting the commission Rowena Orr QC said. "Money is deposited at CBA so NAB can't detect the deposits. Happening on a daily or weekly basis and has been happening for a number of years."
Five bankers were sacked in November 2015 over the scandal, but the Commission heard that 60 bankers were involved in varied levels of misconduct related to the program, including falsified loan documents, dishonestly putting customers' signatures on forms and the provision of unsuitable loans.
David Harris told the Commission how, after continually maxing out his credit cards before consolidating them to a lower-rate card in 2016, CommBank offered to increase his credit limit despite him trying to "tell them I had a problem".
During a call to change his address, he was told he was eligible for an increase on his A$27,100 limit. "I explained that clearly I'm a gambler, I have a gambling problem," he said. "I can't understand why they kept offering me more money."
Less than two weeks later he received a letter offering to increase his limit to A$32,100, and a month later another offering to increase it to A$35,100. He eventually accepted the higher limit. "I maxed it out within a space of a month to two months, then borrowed A$35,000 off my boss to pay it off," he said.
"I went into the bank to close my account, my boss came with me because he knew I had a problem. They said I couldn't close it in the branch that I'd have to call up to completely close the account, so I rang the bank and they said I had to do it in the branch."
Accusing the bank of negligence, Harris applied for financial hardship assistance. CommBank reduced his debt by A$10,000 and waived future fees and interest, but he still owes A$23,400.
In mid-2012, Nalini Thiruvangadam was approved for a loan she couldn't afford to buy a new car after her old one caught on fire while she was driving.
At the time, she was earning just A$350 a fortnight as a personal care assistant and receiving Centrelink benefits. She had been knocked back from several major banks, finance companies and car dealers in her area, due to an unpaid Citibank credit card.
Eventually she found a dealer 50km away, who told her over the phone, "Don't worry, you come to my car dealer, and you are definitely going back with a car tonight." At the dealership, she waited while he made phone calls for up to two hours.
Only after she had signed the documents and been approved for the loan by Westpac subsidiary Bank of Melbourne did she find out it was a second-hand demonstrator model. When she complained, the dealer told her, "It's already yours, you already bought it."
Thiruvangadam almost immediately fell behind on the repayments of A$259.98 a fortnight. "I also sold jewellery [that was] given to me by my mum, jewellery for my sons, given by my mum, I sold [it all] in a Cash Converters shop ... just to catch up with the payments," she told the Commission.
After the Consumer Action Law Centre took up her case, Westpac forgave the loan, let her keep the car, and paid her a settlement of A$20,000.
Last month, CommBank said it would stop selling its Credit Card Plus and Personal Loan Protection and refund A$16m to customers who purchased "worthless" insurance products they would not be able to claim on.
The bank was attempting to get in front of the Royal Commission hearing later that month, which heard the problem was first identified by the ASIC in 2011 but CommBank continued to sell the products until 2015 when an internal audit identified 64,000 affected customers.
Irene Savidis told the Commission how in 2013, while she was unemployed and receiving Centrelink benefits, she applied for a credit card. After being approved for a A$4,000 limit, she was convinced to take out credit card insurance at a meeting in the branch.
"They were telling me it's good for me, it will help me in the long run if anything happened to me," she said.
"I explained to her how I wasn't working, because she said if I stopped working ... it would help cover any sort of costs that I couldn't afford, for example. And when I told her I wasn't working she said I can still claim on it."
Customers were charged 55 cents a month for every A$100 owing on the card — equivalent to A$22 on Ms Savidis' maximum limit — despite CommBank knowing they were unemployed and so ineligible to claim on insurance intended to cover for the loss of a job.
The so-called "fee for no service" issue has hit all of the major banks, but the Commission has slammed CommBank as the rip-off "gold medallist". One adviser even continued to charge fees for more than a decade despite knowing the client had died in 2004.
Internally, the problem was only noted as a "possible warning to adviser". Another planner was receiving about A$65 a month in fees from a client who had been dead for seven years before contacting the widow, and still took "no action to fix the continuing charges".
"[CommBank] would be the gold medallist if ASIC was handing out medals for fees for no
service, wouldn't it?" counsel assisting the commission, Mark Costello asked Linda Elkins, the executive general manager of CommBank's Colonial First State. "Yes," she replied.
AMP, meanwhile, has also come under the blowtorch for charging clients for financial advice they did not receive. The Commission heard the company made a deliberate decision to continue charging fees to a group of "orphan" clients for three months when they went into a central pool, despite knowing it was illegal.
To make matters worse, AMP admitted to lying to ASIC about the conduct — a revelation Federal Treasurer Scott Morrison has warned could land executives behind bars. "This type of behaviour can attract penalties which include jail time," he told The Australian Financial Review. "That's how serious these things are."
In April 2015, Jacqueline McDowall and her husband lost their home and most of their superannuation after approaching Westpac for help in buying a A$1m live-in bed and breakfast to run in their retirement.
McDowall told the Commission financial planner Krish Mahadevan tipped the couple into a self-managed super fund and advised them to sell their A$550,000 home and take out life insurance of up to A$1m each.
"You're in the right place. I'm the money man. I'm the man who can lend you up to A$2m," he allegedly told them. It was only after selling their home and moving into rental accommodation that they were told they couldn't live in a property and run a business from it, and that they could only borrow up to A$200,000.
"And I just said to them, 'So what do we do now? Where do we go from here?'," she told the Commission. "And Krish said, 'But you can still buy an investment property.' I said, 'Well, I don't think that that makes any sense.'
"I said, 'We sold our family home on your advice. We now don't have a family home to live in. So why would we then buy an investment property to rent to someone else when we haven't even got a property to live in ourself?'"
McDowall, who was eventually compensated by the bank in 2017, said she felt they had been "led up the garden path and lied to". "I just feel now after all the time after all the fees and insurance ... that all along from the end of it they were just aiming for us to take out an investment property that you can't live in," she said.
While she had been planning to retire at 60, she told the Commission it would now happen "probably when I can't walk". "Probably when I'm in a wheelchair or Zimmer frame," she said. "Looks like I will be working till I'm 80."
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