The association asked Bayly to enable the court to impose proportionate penalties for breaches, as is the case for those that occurred after 2019, when the law was changed.
Bayly’s successor, Scott Simpson, took the banks’ request on board.
He included the change in the Credit Contracts and Consumer Finance Amendment Bill, which passed its first reading in Parliament last month.
However, newly released documents show Ministry of Business, Innovation and Employment (MBIE) officials were initially wary of changing the law for between 2015 and 2019.
In July last year, they said there were “weighty concerns and challenges” associated with this.
“Legislation with retrospective effect is generally against the principles of good lawmaking and only justifiable when it is entirely to the benefit of parties affected,” MBIE officials said.
They noted the change would disadvantage borrowers who entered into agreements with lenders in accordance with the law that existed at the time.
A few months later, officials met with ASB and ANZ to ascertain how they could be affected by the litigation against them.
The Herald understands the two banks could be required to reimburse around 150,000 customers hundreds of millions of dollars in interest costs and fees if they lose the case.
This would come on top of the tens of millions the banks have collectively already compensated affected customers, after reporting breaches to the Commerce Commission.
The documents also show Reserve Bank officials modelled whether the law left banks dangerously exposed.
They didn’t identify “imminent” financial stability risks, but concluded the cost of litigation could hit smaller domestic banks, heavily reliant on mortgage lending, particularly hard.
This could affect competition in the sector, as well as the cost and availability of credit.
Reserve Bank officials also found that not all banks could maintain their minimum capital requirements in every scenario modelled.
Indeed, in their most severe scenario, they estimated the financial system could lose nearly $13 billion.
By October 2024, MBIE officials were convinced a retrospective law change was a good idea.
They recognised the Government hadn’t publicly consulted on the matter, but suggested it move quickly, to “alleviate distress in the market” caused by the prospect of ASB and ANZ losing their case.
The industry feared this could prompt a wave of litigation related to other historic breaches, with handsome sums to be made by the lawyers who run class actions.
By November, Bayly agreed to the law change.
The next question was whether active litigation – the class action against ASB and ANZ – should be exempt.
Officials noted this “may attract criticism from lawyers, consumer advocates and ANZ and ASB customers”.
They ultimately decided it was fair that if the law was being changed for the period between 2015 and 2019, it should apply to the court case too.
They noted this wouldn’t necessarily change the outcome of the class action against ASB and ANZ. Rather, it would empower the courts to use their discretion to issue a proportionate penalty.
This said, officials recognised the matter was controversial, so drafted a clause to exclude active litigation in case Cabinet decided to run with this option.
It didn’t, and by the end of March, a bill was introduced to Parliament that specifically says it applies to the class action against ASB and ANZ.
Members of the public will be able to share their views on the bill, as it is scrutinised by the Finance and Expenditure Committee.
It could still be tweaked before being passed into law.
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.
