Four days later, the New Zealand Banking Association emailed the Commerce and Consumer Affairs Minister at the time, Andrew Bayly, urging him to make a part of the law apply to the past.
This could heavily reduce the severity of the penalties faced by lenders (including ASB and ANZ) that failed to give their customers the correct information about their loans between 2015 and 2019.
MBIE set about investigating the change, including getting the Reserve Bank to model the impact of potentially high penalties on the financial system.
In September, MBIE officials met with ASB and ANZ to discuss the matter.
The first the public knew of it was when the change was put in the Credit Contracts and Consumer Finance Amendment Bill, which was introduced to Parliament on March 31 this year.
Speaking to the Herald, Russell voiced his dismay over the process.
He raised the issue of retrospectivity with officials, as it is key to the class action he is running. They said they wouldn’t make the change. They then investigated the change on the request of the banks, and never sought to hear Russell’s side of the story.
It made a mockery of the process, Russell said.
His team has spent years working on the class action, which could represent more than 150,000 people. It successfully fought all the way to the Supreme Court for the customers affected by the breaches to automatically be included in the action, rather than having to proactively opt in.
Russell shot down one of the key arguments officials made in support of changing the law – that if ASB and ANZ were unsuccessful, this could prompt borrowers to dig up other disclosure breaches between 2015 and 2019 and take their lenders to court. While ASB and ANZ can absorb large penalties, these could cripple smaller players, hampering the cost and availability of credit.
However, Russell made the point the value of breaches by smaller lenders would likely be too low to make litigation worthwhile.
He said the gain for the customers and their lawyers needed to be worth at least $50 million for class action funders to give it a look in.
“It would be pretty hard to meet that threshold,” Russell said.
There are likely hundreds of millions of dollars at stake in the class action against ASB and ANZ.
This is because under the current law, between 2015 and 2019, lenders must reimburse borrowers all their interest costs and other fees for the duration of the disclosure breach, regardless of the severity of its impacts.
The law was changed in 2019 to give the courts more discretion to impose proportionate penalties. However, the Government at the time decided not to make the change apply to the past.
Come 2024, the Reserve Bank found the financial system stood to lose as much as $13 billion if the law wasn’t changed, in the most severe scenario modelled.
MBIE officials also made the point a retrospective change wouldn’t necessarily affect the class action against ASB and ANZ, as the court could still issue a weighty penalty.
Again, Russell challenged this, saying that under both the CCCFA and the Limitation Act there are rules around how long after a breach people can make claims.
While MBIE officials noted there was uncertainty around how these provisions could be applied, Russell believed they would make it increasingly difficult, if not impossible, for people to make claims related to the period between 2015 and 2019.
Members of the public will have their first opportunity to provide feedback on the proposed retrospective law change, as the Credit Contracts and Consumer Finance Amendment Bill goes through the select committee process.
A court date for the substantive part of the class action against ASB and ANZ is yet to be set.
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.
