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The financial services royal commission has suggested that ANZ is “non-compliant with the National Credit Act, responsible lending obligations and with regulatory guides issued by ASIC” by not verifying “inconsistent” living expenses.
The major bank has told the financial services royal commission that it is reliant on the validity of general expense claims provided by brokers when determining a borrower’s suitability for a home loan.
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Appearing before the commission on Monday (19 March), ANZ’s general manager of home loans and retail lending practices, William Ranken, admitted that the bank does not further investigate a borrower’s capacity to service a broker-originated mortgage.
When asked if ANZ verifies information provided by brokers, Mr Ranken responded: “General living expenses? No.”
Ms Rowena Orr, the senior counsel assisting the commission, highlighted a guide by the Australian Securities and Investments Commission (ASIC) that tells banks they are “obliged to take reasonable steps to verify consumers financial situation”.
“Generally, this will require some ‘positive steps’ to verify the information provided by the consumer,” the guide reads.
When asked by Ms Orr whether ANZ agrees that it “does not take positive steps to verify the customer’s expenses”, Mr Ranken said: “No, not all expenses.”
“Our processes are we do nothing”
Ms Orr later asked whether the bank questioned the stated living expenses if they were “inconsistent” with information that ANZ holds, such as bank statements. When Ms Orr asked whether ANZ “do[es] nothing” about checking “inconsistent” information, the ANZ representative replied: “Our processes are we do nothing. There are transactions on those statements that are inconsistent with the statement of position and we don’t do anything.”
He added that he believed that this was “satisfactory”, adding: “We are talking about the manual review of paper-based bank statements and to use those to verify a customer’s statement of position, particularly general levying expenses, [which] would be highly complex, very time-consuming, very costly and, ultimately, not necessarily that helpful.”
Ms Orr continued: “So, as I understand your answer, it’s too hard to do that. It’s too hard to do anything about an inconsistency, so it’s ignored?”
In response, Mr Ranken said: “It’s not that it’s too hard. It’s actually that it… it is hard, but it’s not that it’s too hard. It’s too hard, but there are better ways to get a better level of comfort around a customer’s expenses.”
When asked to elaborate as to what those were, Mr Ranken said that “that is the purpose of the customer interview guide”.
The counsel then warned Mr Ranken: “I want to put to you that your processes, or your lack of processes in relation to the verification of a customer’s expenses, are non-compliant with the National Credit Act, responsible lending obligations and with this regulatory guide issued by ASIC.”
Mr Ranken did not agree, emphasising that manually reviewing bank statements against stated expenses would be a “highly complex situation”. However, the executive did reveal that the bank was conducting a trial to see whether they could pre-populate expenses automatically.
Commissioner Kenneth Hayne questioned the bank’s reliance on customer information gathered by brokers, stating that there is “no incentive” for brokers to request detailed expense information from their clients.
“Why is it in the broker’s interest to interrogate the customer? When the customer reports living expenses as $X a month, what’s in it for the broker to say, ‘You sure? Is that right?’,” Mr Hayne said.
The ANZ representative said that it would be up to the individual broker, claiming that brokers operate as agents for their clients.
“Well, are they? Who’s the agent for who in this transaction?” Commissioner Hayne continued. “Do you agree with me that there’s no incentive for the broker to interrogate the customer about expenses?”
Mr Ranken disagreed, claiming that brokers have “their own obligations under their own licensing requirements” to ensure that customers are suitable for the loan.
Ms Orr also asked Mr Ranken why brokers should “bother” to submit expenses documentation “if it’s not analysed by ANZ from an expenses perspectvie”, to which Mr Ranken replied: “We ask the broker to provide the documentation for verification of income”.
However, speaking to the Productivity Commission earlier this month (5 March), as part of its inquiry into competition in the financial system, mortgage broker and owner of Universal Wealth Management Maria Rigoni argued that lenders are solely responsible for assessing the suitability of a borrower.
“[The] lender gets all the information about the borrower at the time, and the decision is made by the lender whether to approve that loan or not approve that loan, and then the borrower has the option to either accept that credit or refuse that credit,” Ms Rigoni said.
What do you think about the major banks? The last 12 months have been challenging for the big banks. Rising funding costs have continued to pressure margins, leading to pricing changes towards the end of 2017. Meanwhile, regulatory measures and higher capital requirements are forcing the big four to tweak their policies.
Which lenders have continued to deliver excellent product and service, and which lenders have communicated the myriad changes best?
This is your chance to let us know what you really think in the Third-Party Lending Report – Major Banks survey for 2018.
[Related: ‘Australia-first’ AI-driven living expenses engine launches]
