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19-222MR ASIC sues NAB for dealing with unlicensed home loan introducers: Royal Commission case study
ASIC has commenced proceedings in the Federal Court against National Australia Bank (NAB) for breaches of the law arising from failures with its Introducer Program.
ASIC alleges that between 3 September 2013 and 29 July 2016, NAB accepted information and documents in support of consumer loan applications from third party introducers who were not licensed to engage in credit activity.
As a result, ASIC alleges NAB breached s31(1) of the National Consumer Credit Protection Act 2009 (National Credit Act) which prohibits credit licensees from conducting business with parties engaging in credit activity without an Australian credit licence (ACL). ASIC also alleges that NAB breached its obligations under s47 of the National Credit Act requiring it to engage in credit activities efficiently, honestly and fairly and to comply with the Act.
The proceedings relate to the conduct of 16 bankers accepting loan information and documentation from 25 unlicensed introducers in relation to 297 loans.
One of the key objectives of the National Credit Act’s licensing regime is consumer protection. The imposition of a licensing regime was intended to address concerns that third-party referrers (including brokers and introducers) may misrepresent consumers’ financial details to ensure loans are approved, and their commissions are paid, in circumstances where the consumers’ true financial position means that the loan should not be made.
ASIC is asking the Court to find that NAB breached the National Credit Act and to impose a civil penalty on NAB for doing so. The maximum penalty for one breach of s31(1) of the National Credit Act, during the time of contravention, was 10,000 penalty units, or $1.7 to $1.8 million.
The proceeding will be listed for directions on a date to be determined by the Court.
Since at least 2000, NAB operated the credit industry’s largest referral program, known as the ‘Introducer Program’, whereby a third-party introducer could ‘spot and refer’ a potential customer to NAB in exchange for commission if the customer entered into a loan with NAB. Between 2013 to 2016, NAB’s Introducer Program generated $24 billion dollars’ worth of loans.
Introducers referring customers through the Introducer Program were only to provide NAB with the potential customer’s name and contact details. In order for an introducer to provide NAB with further information or documents, the law required that the introducer be authorised under an ACL.
ASIC’s investigation uncovered that NAB bankers overstepped the ‘spot and refer’ requirement by accepting information and documentation from the 25 unlicensed introducers, including completed home loan applications, payslips, copies of customer identification documents and more. This behaviour can pose a serious risk to consumers, as ASIC also identified that in some instances the documents provided to NAB by the unlicensed introducers were false.
During the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, NAB identified that misconduct in their Introducer Program went undetected until 2015 for reasons including:
- no head of the Introducer Program, with a General Manager only being appointed in October 2016
- a lack of systems to monitor or review introducers, and
- controls over the Introducer Program relied heavily on bankers.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Interim Report Volume 2: Case Studies details a range of misconduct in relation to the NAB Introducer Program (page 1 -16). This includes:
- the misconduct identified in the present proceedings
- the misconduct that was the subject of ASIC’s administrative action against former NAB Branch Manager Rabih Awad; and the misconduct that was the subject of ASIC’s administrative action against former NAB Branch Manager Rabih Awad (18-211MR), and
- the misconduct identified in ASIC’s criminal prosecution and administration action against former NAB Branch Manager Mathew Alwan (19-216MR).
In July 2018, ASIC banned Mr Awad (who is one of the 16 bankers identified in the present proceedings) from engaging in credit activities and providing financial services for a period of seven years.
Mr Awad was found to have given NAB false payslips, letters of employment, and entered false referee contact details in NAB’s lending systems in multiple home loan applications. A majority of the false documentation submitted to NAB by Mr Awad was provided to him by a real estate agent who was previously registered as a NAB Introducer.
On 20 August 2019, Mr Alwan (who is not one of the 16 bankers identified in these proceedings) pleaded guilty to one count of ‘intention to defraud by false or misleading statement’, an offence under the NSW Crimes Act. The charge relates to Mr Alwan’s conduct in relation to 24 home loan applications which he falsely told NAB were referred by his uncle’s business ‘Suit Club’, a registered NAB Introducer. This resulted in NAB paying Suit Club $56,955 worth of commission. In October 2018, ASIC permanently banned Mr Alwan from engaging in credit activities and providing financial services for the same misconduct.
On 25 March 2019, NAB announced that it will be terminating the Introducer Program on 1 October 2019.
The proceedings have been listed for the first Case Management hearing on Monday, 16 September 2019 in the Federal Court before Chief Justice Allsop.
Editor's note 2:
The matter is listed for further case management hearing on 18 November 2019, before Justice Lee.
Editor's note 3:
On 18 November 2019, the matter was listed for further case management on 6 April 2020.
Editor's note 4:
The Court ordered that the parties file any statement of agreed facts with the Court by 4 May 2020.
The proceedings have been adjourned for a further case management hearing at 9.30am on 7 May 2020.
Editor's note 5:
On 7 May 2020, the matter was listed for a hearing at 10.15am on 20 July 2020.