Westpac refutes remuneration drove car loan misconduct

Westpac CEO Brian Hartzer was again asked questions relating to a specific car loan case study that was raised during the first round of hearings in March.

The major bank admitted to the royal commission earlier this year that it did not undertake verification checks for loan applications submitted by car dealers.

Appearing before the financial services royal commission in March, Westpac’s general manager of specialist finance, Phillip Godkin, conceded that the bank had breached responsible lending provisions outlined in the National Credit Act.

Westpac was accused of approving an unsuitable car loan for a client whose income and expense claims were provided by a car dealer.

Confirming that its processes in relation to the approval of the loan were “deficient”, Westpac CEO Brian Hartzer told the commission on Wednesday (21 November) that he did not believe remuneration was tied to the behaviour.

The commission asked Mr Hartzer: “[Y]ou say that you have not identified any internal reward or remuneration issues that contributed to the decision by Westpac to approve the loan?”

“That’s right,” the CEO replied.

“And you say that Westpac employees responsible for approving loans such as those made in this case are not incentivised to approve loans?” the senior counsel assisting, Michael Hodge, asked.

“That’s right,” the CEO replied.

However, the Westpac CEO did suggest that one explanation for the car dealer failing to follow the correct procedures was “the pursuit of a commission on the car” as well as trying to help a consumer secure a car.

The counsel assisting wryly responded: “When you have to choose between those two possibilities, one of which is doing something in order to make a profit and get the commission, and the other of which is engaging in some sort of fraud or misrepresentation to Westpac out of the goodness of the dealer’s heart, which one do you think is more likely?”

The way the bank remunerated advice licensees was also called into question during the hearing, with the commission noting that Westpac had “turned off” grandfathered commissions in the wealth space because it “recognises that it is in its clients’ interests to [do so]”.

The counsel assisting pointedly asked: “Surely, it was apparent, at least from the time of FOFA, that commissions were not in the interest of clients?”

The Westpac CEO said that the “commission is not necessarily against the interest of customer, but the issue was that with the structure of product commissions that was in place at the time, created the risk of advisers not acting in customers’ interest”.

The commission asked: “Is it fair to say that one of the things that you recognise is that there is an inherent conflict between owning the product manufacturer and owning the advice licensee?”

In response, the Westpac CEO said that there was “potential for conflict,” but that he believed it could be “managed”.

The royal commission has been taking a line of questioning recently that has been taking a close look at commission payments.

On Monday, counsel assisting Rowena Orr asked CBA CEO about broker remuneration, and it was revealed that the big bank CEO was in favour of moving to a consumer pays model (a statement that has been widely panned by major players in the broking industry) as he believed that it “best serves the customer”.

Further, Commissioner Kenneth Hayne also questioned Mr Comyn over whether brokers deliver ongoing services to clients to justify the payment of trail commission.

Mr Hartzer will continue his evidence today (22 November).

[Related: Open letter to CBA CEO Matt Comyn]