ME Bank cut $367.5 million from borrowers’ redraw facilities in April without warning them beforehand.
A parliamentary committee on Wednesday learnt that the bank first raised the redraw issue with the corporate regulator ASIC in 2013.
The bank’s actions are under investigation by the corporate regulator.
ASIC Commissioner Sean Hughes, when asked if ME Bank had broken the law, replied: “I’m not in a position to answer that question as our inquiries are ongoing”.
The regulator is looking at a number of issues, not just the bank’s sudden changes to redraw facilities.
“Our inquiries are ongoing across a range of matters,” Mr Hughes said.
He did not indicate what those other areas were.
Old news to ASIC
Mr Hughes said ASIC’s concerns about redraw accounts dated back seven years.
ME Bank “had drawn [redraw accounts] to our attention in March 2013 and at that time we understood that there were … approximately 6970 customers who, if they accessed their redraw funds, may take their loan balance above the amortisation curve,” he said.
The amortisation curve is the planned rate at which a loan will be paid off if the borrower sticks to the repayment schedule.
If redrawing pushes the customer over the curve it means they have more to repay than the bank is prepared to lend.
At that time, ME asked ASIC to provide a ‘no action’ letter on the issue, which would have meant the regulator would not move against the bank over the issue.
“We decided not to do so,” Mr Hughes said.
ASIC received no complaints from ME Bank customers over the issue, Mr Hughes said.
However, that did not put the issue to bed for ME and on December 10 2019 the bank raised it again with ASIC, telling the regulator there were ongoing issues with redraw customers.
“This was not a formal breach report,” Mr Hughes said.
Customers need to know
When ME Bank raised the issue of reducing redraw rights to customers in December, Mr Hughes said ASIC had emphasised the importance of customers being informed of actions.
“We thought it important that ME Bank communicate effectively and promptly with customers to explain when and why changes were being made,” he said.
However, ME appeared to ignore the regulator’s concerns and did not communicate with the regulator as expected.
“The impression we gave [to ME] in December was that this was something we would expect to be kept up to date on,” Mr Hughes said.
A meeting with the regulator was held on March 30 “at our insistence,” Mr Hughes added.
“This was not a proactive engagement with the regulator; it was a reactive response to a letter.”
ME Bank informed ASIC it was going to limit the redraw amounts of 21,790 borrowers on April 16 but did not inform the borrowers of its plans.
Instead, it cut an average of $17,500 from their redraw rights between April 21 and April 27 without letting them know.
Committee chair, Liberal MP Tim Wilson, pushed ME CEO Jamie McPhee on why the bank had acted first and talked to borrowers later.
“The thinking behind that was to … make sure that customers … couldn’t inadvertently redraw over the amortisation schedule,” Mr McPhee said.
The bank had chosen “to adjust and then respond to customers,” Mr McPhee added.
“So it was a conscious decision made by ME Bank to reduce the options for customers before notifying them?” Mr Wilson asked.
“You didn’t want customers … to be made aware of the potential reduction … so they didn’t withdraw any additional sum if they knew that option was going to be reduced.”
Mr Wilson added: “You accept that that was wrong?”
Mr McPhee agreed.
Not all in the know yet
After ME Bank made the cuts to redraw facilities, customers began to complain as media reports brought the issue to light.
ME Bank began informing customers of their new redraw limits and now all 21,790 who had their limits cut have been told.
However, another large cohort who had already redrawn amounts over their amortisation curve are being contacted by phone about their situation. Still not all of those communications have occurred.
“Those contacts still haven’t all been made even though you have been aware of the problem since 2013,” an incredulous Mr Wilson remarked.
The decision to change redraw rights was made by a subcommittee of the bank’s board, a process Mr McPhee said was under question.
“We will obviously take a review of the process; it hasn’t started yet,” Mr McPhee said.
Under questioning, APRA deputy chair John Lonsdale told the committee that despite reports emerging that significant amounts of money withdrawn from superannuation under pandemic emergency measures had been spent on gambling and consumption, the regulator was comfortable with the scheme.
“We do not have any concerns at this stage,” Mr Lonsdale said.
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