ANZ has declined a proposed settlement by lawyers leading a massive class action against the bank for giving customers the wrong information about their loans.
The lawyers asked ANZ to agree to pay a penalty of up to $300 million, on top of the $35m it has already paid more than 100,000 customers to compensate them for an error made nearly a decade ago.
ANZ responded in a letter, saying the sum sought was so high that the bank could not reasonably be expected to agree to it.
It called the offer a “stunt” – a “misguided” and “cynical attempt to influence the law reform process currently before Parliament”.
ASB, which is also subject to the class action, is yet to respond to the proposal for it to also make a payment of up to $300m.
“This is a very new development and we’re not in a position to comment at this stage,” it said.
ASB has already paid 73,000 customers $8m to rectify the disclosure mistakes it made between 2015 and 2019.
The $600m settlement offer comes as the Government proposes a law change that could make it harder for the customers (and the funders of the class action) to receive very large amounts in redress.
The Government wants to change the law to give the courts discretion to issue lenders fair penalties if they fail to give customers the correct information about their loans.
Under the existing law, lenders that made errors between 2015 and 2019 may have to refund customers all the interest and other fees they paid for the duration of the breach, regardless of how severe it was.
The proposed change is controversial because it applies to the past.
The Credit Contracts and Consumer Finance Amendment Bill attempts to ensure the law pre-2019 aligns with the law post-2019.
Another contentious element of the bill, introduced by Commerce and Consumer Affairs Minister Scott Simpson, is that it specifically says it will apply to the ANZ/ASB case.
While New Zealand First and Act supported the bill through its first reading in Parliament on May 20, neither party is particularly hot on it.
NZ First deputy leader Shane Jones said his party would take advice before deciding whether to support the bill being passed into law in its current state.
“I wouldn’t want to jump to any conclusion, but it’s a very, very bad constitutional practice to summarily change people’s rights unless there is a compelling case,” Jones said.
Act leader David Seymour said his party supported the bill because it is a part of the Coalition Government.
However, he wrote to Simpson (after Act supported the bill through its first reading) to raise his concerns over it applying retrospectively and targeting a matter before the courts.
“Who knows, maybe Scott [Simpson] will change his mind in response to this,” Seymour said.
Parliament’s finance and expenditure committee is considering public submissions on the bill, which could be tweaked before being passed into law.
ASB said it started calling for a law change in 2016 – before it was the subject of litigation.
ANZ said the settlement offer appeared to be driven by the financial interests of the litigation funders, LPG Group, which noted it would take a cut of between 13% and 25% of the settlement.
The lawyer leading the class action, Scott Russell, said $600m was equivalent to 3.5% of ANZ’s profits between 2016 and 2019, and 5% of ASB’s profits over this time.
He proposed that the banks pay the lesser of this sum and 68% of the borrowing costs customers paid through the duration of their breaches.
If the Government doesn’t change the law as it proposes to, the banks could be required to reimburse customers 100% of their borrowing costs.
No one knows what this could be, because there is debate over how many people are covered by the action.
Russell has spent four years fighting to the Supreme Court to successfully secure the right for all customers affected by the banks’ breaches to automatically be included in the class action. Rather than requiring customers to opt in, they are covered, unless they opt out.
Russell suggested a settlement capped at $600m was affordable for the banks, and would reduce the need for the Government to change the law to protect them.
However, the New Zealand Banking Association’s concern is that a small lender could be crippled if it had to reimburse customers all their borrowing costs for the duration of a breach between 2015 and 2019.
It argued that if several lenders were taken to court, this could destabilise the financial system. Reserve Bank modelling suggested the risk could total $13 billion in a particularly bad scenario.
However, Russell said he was unaware of other cases in the works.
If others were in fact planning to take their lenders to court, they might be restricted by the law limiting how long after an event legal action can be taken.
Russell said the issue was also one of principle – that it was unfair for the Government to pull the rug from beneath people’s feet.
Jenée Tibshraeny is the Herald‘s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.