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18-057MR Court finds ANZ breached responsible lending laws in its former Esanda car finance business
The Federal Court in Melbourne has published its findings and reasons for ordering Australia and New Zealand Banking Group Ltd (ANZ) to pay a penalty of $5 million for breaches of the responsible lending provisions by its former car finance business, Esanda.
The Court's judgment follows ASIC's announcement of a package of actions against ANZ for contraventions of various responsible lending provisions of the National Consumer Credit Protection Act (refer: 18-013MR).
In relation to the civil penalty proceedings, the Court found (in summary):
- in respect of 12 car loan applications from three brokers, ANZ failed to take reasonable steps to verify the income of the consumer because ANZ relied solely on a document which appeared to be the consumer’s payslip in circumstances where ANZ:
- knew that payslips were a type of document that was easily falsified;
- received the document from a broker who sent the loan application to Esanda; and
- had reason to doubt the reliability of information received from that broker;
- income is one of the most important parts of information about the consumer’s financial situation in the assessment of unsuitability, as it will govern the consumer’s ability to repay the loan;
- while ANZ did not completely fail to take steps to verify the consumers’ financial situation, it inappropriately relied entirely on payslips received from these brokers; and
- ANZ management did not ensure that relevant policies were complied with and, in the case of the contraventions involving one broker, no action was taken despite management personnel having become aware of the issues about the broker.
The judgment annexes a statement of facts which sets out why ANZ had reason to doubt the reliability of the payslips being provided with the 12 applications, including that one of the brokers had been previously investigated for fraud. ANZ had also become aware of issues with payslips being provided by the brokers that gave it reason to doubt the authenticity of the submitted payslips.
The statement of facts also sets out that reasonable steps to verify a consumer's income would have included requesting from the consumer a bank statement showing a history of salary deposits or substantiating salary deposits in ANZ bank accounts for an existing customer.
In its judgment, the Court made clear that where unlicensed brokers submit loan applications in reliance on the “point of sale” exemption under regulation 23 of the National Consumer Credit Protection Regulations 2010 (Cth), lenders have a heightened obligation to exercise particular care. This was the basis for the higher penalties imposed on ANZ relating to the loans submitted by one of the brokers under the point of sale exemption.
ASIC Deputy Chairman Peter Kell said, 'A consumer's income is an essential component in determining their ability to repay a loan. Lenders must take reasonable steps to verify a consumer's financial situation, and this includes checking the reliability of documentation that is provided to them. Lenders must be alert to the potential for documents to be falsified and ensure that their controls are sufficiently robust. '
ANZ will be remediating approximately 320 car loan customers for loans taken out through the three broker businesses from 2013 to 2015 which are likely to have been affected by fraud. The remediation will total around $5 million.
- offer eligible customers the option of entering into a new loan on more favourable terms than the existing loan;
- provide refunds to some customers who have paid their loan out or had the car repossessed; and
- remove any default listings resulting from the loan.
ANZ has commenced contacting some customers eligible for remediation. Customers can contact ANZ on: 132 373.
ASIC has taken separate actions in relation to the three brokers who submitted false documents to ANZ:
- 15-281MR ASIC imposes licence conditions on United Financial Services Pty Ltd
- 16-209MR Former Sydney finance broker sentenced to intensive correction order
- 16-302MR ASIC permanently bans former Sydney finance broker
- 16-456MR Used-car finance broker permanently banned
- 17-134MR ASIC acts against car yard loan-writer
- 17-347MR ASIC permanently bans convicted car yard loan-writer
ASIC's Regulatory Guide 209 Credit licensing: Responsible lending conduct sets out practical guidance for lenders and credit intermediaries (including brokers) on how to comply with their responsible obligations.