ME Bank must explain to the community its reasoning behind recent changes to mortgage drawdown arrangements, one of its shareholders has said.
“Senior management needs to get out to address public concern and explain what is happening,” said Gerard Noonan, chair of Media Super, one of the 26 superannuation funds that own ME Bank.
The bank slashed the amount of money customers can redraw from their home loans without warning last week – a move that affected an estimated 20,000 borrowers and sparked a wave of customer outrage.
Many customers said they had planned to use the money in their redraw facilities to weather the economic storm triggered by the coronavirus, with some posting on social media they had lost access to $20,000.
ME Bank said it made the change to ensure people did not inadvertently fall behind on their home loan repayments and run into financial hardship.
It said it discovered a design flaw in an old home loan product, used by 4 per cent of its mortgage borrowers, that enabled customers to draw down a risky amount of money from their home loans, and that “no money has been removed from customer accounts”.
Commonwealth Bank made a similar change in 2018 but warned its customers before doing so.
It told customers that if they dropped their repayments to the minimum amount required after paying into their redraw facility, the accessible amount would reduce over time.
ME Bank CEO Jamie McPhee apologised to customers in a letter posted to the bank’s website on Wednesday, but did not reverse the change.
“We recently adjusted the redraw limits on one of our older legacy home loan products, which has caused upset for affected customers,” Mr McPhee wrote.
“This change was made with the best of intentions – to protect some customers from the risk of redrawing too much money, which could have inadvertently put them behind their repayment schedule.
“But we messed up.
“We should have worked harder to explain a complex product and process simply so that redraw limits were better understood.”
Regulators step up
Regulator APRA has asked ME Bank to explain its actions, and the Australian Financial Complaints Authority has “activated its significant event response plan” to handle an expected spike in complaints.
Mr Noonan said the bank needed to offer a clearer explanation to prevent unwarranted negative commentary from filling the vacuum.
“In the absence of information it is left open for spin from the industry super fund movement’s detractors to imply that the move relates to problems of liquidity in superannuation funds caused by early withdrawals,” Mr Noonan said.
He added that ME bank’s move had nothing to do with super fund liquidity, and industry funds were not suffering liquidity shortages through withdrawals made under coronavirus measures.
Mr McPhee said: “The bank is in a strong financial position and our capital and liquidity levels are well above both internal targets and regulatory requirements.”
Moral and ethical problems
The Australian Council of Trade Unions criticised ME Bank and said it wants it to reverse its decision.
“It’s clearly unacceptable for a bank to create this level of uncertainty and stress during a crisis which is causing financial hardship for millions of Australians,” a spokesman told The New Daily.
“We have made this clear to them and we trust ME will rectify the situation.”
Dr Michael Callaghan, a lecturer, researcher and ethics specialist at Deakin Business School said: “ME Bank has encouraged its mortgage holders to use their redraw facility for many years now, their sudden and in many cases un-notified removal of tens of thousands of dollars is not just shocking, it’s morally, ethically and possibly even legally bankrupt.”
ME Bank said it is in the process of contacting affected customers.
“To make this right, every affected redraw customer will be eligible for an assistance package, including to discuss your redraw and your needs,” Mr McPhee wrote in his letter.
“This process is already under way. Our priority is to fix this situation and to regain the trust of our customers. We can and we will do better.”
The New Daily is owned by Industry Super Holdings. Gerard Noonan is a member of The New Daily’s board