Consumer finance law change could quash huge class action against ANZ and ASB banks

ANZ and ASB could suffer "significant" losses if they lose the class action, according to MBIE. Photo / NZME

The Government has introduced legislation that could see more than 150,000 mortgage holders miss out on hundreds of millions in compensation for mistakes made by ANZ and ASB.

The Government wants to ensure lenders are not disproportionately punished if they fail to disclose all the right information about a product to their customers.

It fears being too heavy-handed could push lenders to be overly risk-averse, meanwhile very tough penalties could harm smaller lenders less able to absorb these costs than the big banks.

It has introduced a bill to Parliament that amends the Credit Contracts and Consumer Finance Act (CCCFA) so the default position is no longer that a borrower can be reimbursed all their interest costs and fees related to a loan provided by a lender that did not meet its disclosure requirements.

Under the proposed change, redress needs to be proportionate to the loss suffered by the borrower.

The pinch is that the Government is proposing to make the updated law apply to breaches dating back to mid-2015.

It’s aware this will affect a class action representing ANZ and ASB customers that’s now before the courts.

ANZ admits that between May 2015 and May 2016, a coding error in its loan calculator meant it misstated the amount of interest payable by customers who changed their loans.

After reporting the issue to the Commerce Commission, ANZ agreed to compensate more than 100,000 customers $35 million.

As for ASB, it agreed to pay $8m to 73,000 customers for failing to give them all the information they needed regarding changes to their mortgages between June 2015 and June 2019. It also self-reported the breach to the commission.

But because the existing law says these borrowers could be entitled to have their interest costs and fees reimbursed for the time their banks breached their responsible lending requirements, the banks are being taken to court in a class action.

While class actions usually only involve those who opt in, the Supreme Court ruled this one will automatically include everyone implicated by the two banks’ breaches.

The issue at the centre of the action is expected to be heard in the High Court later this year or early next year.

The explanatory note in the Credit Contracts and Consumer Finance Amendment Bill specifically mentions the fact it will apply to the class action.

The Ministry of Business, Innovation and Employment (MBIE), in a regulatory impact statement, commented on the class action, saying it created “the potential for significant losses for ANZ and ASB in the first instance, but also for lenders in a more precarious position than ANZ and ASB”.

“This could threaten effective and competitive supply of credit to consumers over the long-term,” it said.

MBIE did not take issue with changing the law to apply retrospectively to a matter before the court.

“Providing the court with explicit discretion to deliver a just and equitable outcome is not, in our view, an objectionable kind of interference with proceedings already before a court,” it said.

Commerce and Consumer Affairs Minister Scott Simpson wanted to ensure regulatory settings were “balanced” and didn’t add to the cost of borrowing.

Corresponding with this, the bill proposes lenders’ directors and senior managers are no longer personally liable for not fulfilling their due diligence duties under the act.

This means a chairperson won’t risk being fined up to $200,000 if the bank or finance company they work for has inadequate processes in place to ensure it lends responsibly, for example.

Simpson feared the status quo was causing lenders to be too risk-averse, which was ultimately costing consumers.

Work on changes to the legislation was started by Simpson’s predecessor, Andrew Bayly, who resigned as a minister in February after grabbing a staffer’s arm in an animated discussion.

“Andrew had spent a lot of time considering a range of reforms and changes. He’s a very passionate advocate. He’s done a lot of the groundwork,” Simpson said.

“I’ve been telling stakeholders as I’ve been going and having meetings over the last month or so that the brief I’ve had from the Prime Minister is to continue Andrew’s policy work at pace, and faster if I can.”

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.