Commission analyses expenses and benchmarking

The commission heard, over the course of the hearings, that ANZ relied heavily on brokers to make inquiries into a customer’s financial situation.

“The results of the broker’s inquiries about the customer’s financial position are provided to ANZ in a document referred to as a statement of financial position, which is signed by both the customer and the broker.

“The evidence establishes that ANZ does not take any steps to verify the customer’s general living expenses as declared on this form.

“The evidence also establishes that where ANZ holds information about a customer that is inconsistent with information about the customer’s expenses, as recorded on this form, it disregards that other information and does not make any further inquiries into that inconsistency.”

Ms Orr then reiterated a case study involving a pensioner that was granted a $50,000 home loan to pay individuals overseas, despite his actual expenses being recorded as “half their true value”. She added that the bank incorrectly filled a hardship application form on his behalf, among other failures.

The counsel outlined that it was open to the Commissioner to make a range of findings of misconduct against ANZ, including that “ANZ’s policies and procedures relating to broker initiated home loans are inadequate as they do not provide a system for ANZ to take reasonable steps to verify a consumer’s financial situation insofar as that  verification relates to a customer’s general living expense”.

This evidence, as well as much more, led Ms Orr to call on all parties with leave to appear to provide written submissions addressing the following questions which arose from the ANZ case study:

• do credit providers have adequate policies to ensure that they comply with their obligations under the National Credit Act when offering broker-originated home loans to customers, insofar as those policies require them to make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit contract, to make reasonable inquiries about the consumer’s financial situation, and to take reasonable steps to verify the consumer’s financial situation?
• is use of the HEM [Household Expenditure Measurement] benchmark an appropriate way to deal with the difficulties associated with securing an accurate assessment of living expenses from a customer?
• is use of the HEM benchmark appropriate in assessing whether a loan is unsuitable for a customer?
• is the HEM benchmark too conservative a measure of a customer’s living expenses?
• does the widely-known use of the HEM benchmark as a default for customers’ living expenses create an unacceptable risk that brokers will fail to make reasonable inquiries about a customer’s financial situation, instead opting to declare an amount of living expenses for the customer that is known by the broker to be in the vicinity of the relevant HEM benchmark?

The commissioner went further, asking: “Is the use of any benchmark suitable? HEM, Henderson Poverty, a newly devised benchmark, is the use of any benchmark suitable?

“Second, as a related issue, in light of the evidence that has been given, I think, by a number of witnesses, that by and large customers are poor historians when it comes to identifying their outgoings. People are not very good at providing the information, not for want of trying, not for want of prompting, just by and large people are poor historians.

“What does that say, if anything, about judging home loans on a measure of UMI [Uncommitted Monthly Income]?”

He continued: “Now, those are very large questions, and it may be that they are questions that are ultimately better treated much later in the course of the Commission’s work. I don’t know.

“But those who are preparing submissions about HEM and its use, I think need to be on notice that there may be questions of the kind that I have mentioned which are then provoked by whatever conclusions I get to about HEM.”

[Related: ANZ accused of non-compliance with NCCP]