The initial hearing of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has revealed that 12 per cent of submissions related to mortgage brokers, and that the first public hearing will also look at home lending.
Speaking at the initial public hearing in Melbourne, the senior counsel assisting, Ms Rowena Orr QC, outlined some of the details of the work already done by the commission as well as the work yet to come.
Describing the data gathering and analysis as a “painstaking process”, Ms Orr revealed that so far:
- 73 inquiries and reviews from parliamentary committees, regulators, independent reviewers and expert panels have been identified and will be monitored;
- More than 385 submissions have been received through the online form for information, which contained 32 questions;
- 49 per cent of responses received to date related to banking;
- 18 per cent online submissions related to superannuation;
- 6 per cent related to general insurance; and
- 6 per cent related to the life insurance and total permanent disability insurance market.
Looking at the “nature of the dealings” involved in the submissions received, Ms Orr stated that:
- 31 per cent related to personal finance;
- 17 per cent related to superannuation;
- 13 per cent related to small business finance;
- 12 per cent related to mortgage brokers; and
- 9 per cent related to financial advice.
Further, Ms Orr said that, to date, approximately 84 per cent of submissions related to “misconduct or conduct of financial services entities that falls below community standards and expectations”, 40 per cent related to culture and governance practices of financial services entities and 35 per cent related to the effectiveness of redress for consumers.
She commented: “Some themes have already emerged from the public submissions in relation to misconduct or conduct that falls below community standards and expectations.
“We have seen a number of submissions about topics such as financial services entities acting on falsified documents, the provision of inappropriate financial advice, inappropriate lending and the delay in processing insurance claims.
“In relation to culture and governance practices, we have seen a number of submissions that raise the issue of conflicts of interest in connection with the practices of representatives of financial services entities. These submissions refer to matters such as incentive-based remuneration, which is regarded as encouraging such representatives to secure an outcome that is not necessarily appropriate for the consumer, such as a loan for an amount in excess of the amount sought. They also refer to commissions payable to a financial adviser by a financial instruction for referring its products to the consumer.”
Ms Orr went on to reveal that the first round of hearings, which will commence in approximately one month’s time, will relate to lending.
She told the commissioner of the inquiry, Justice Kenneth Hayne: “Commissioner, you have referred to the preamble to the terms of reference which refers to the right of all Australians to be treated honestly and fairly in their dealings with banking and financial services providers. The first round of hearings will consider whether consumers are enjoying this right when it comes to lending.
“As I indicated earlier, one of the themes that has emerged from the public submissions through the commission website is inappropriate or unsuitable lending. The focus for the first round of hearings will be on consumer lending and practices. It is likely that this topic will be examined in the context of a number of credit products, such as home loans, car loans and credit cards.”
Ms Orr noted that the first research paper issued by the commission “indicates that home loans are the largest set on the books of authorised deposit-taking institutions [ADIs], comprising around 42 per cent of the assets of such institutions as at the September 2017 quarter”, that there was a total of $1.07 trillion in finance for owner-occupied housing as at November 2017 and that “around 5.8 million households” had a home loan with an ADI.
“Consumers have not always enjoyed the right to be treated honestly and fairly when it comes to home loans”
She therefore commented: “These figures reveal the significance of home ownership for the economy, but they do not necessarily reveal the importance of home ownership for the average Australian for whom the purchase of a property is likely to be the most substantial and perhaps the most stressful financial transaction of their life. The need for honesty and fairness in this context is paramount.
“The commission will hear evidence of events involving certain financial services entities in the context of home lending that suggest that consumers have not always enjoyed the right to be treated honestly and fairly when it comes to home loans.
“Some of these events may have involved breaches of the law, while others may have involved departures from community standards and expectations.”
The lawyer continued: “Each of these events gives rise to important questions for consideration by the commission, not least of which are: how and why were such events permitted to occur and what steps, if any, were taken at the time or have since been taken in response to those events, including steps to ensure that they do not occur again.”
Other aspects that the first public hearing will focus on is car lending and credit cards.
Ms Orr said: “Like their home, the car is also a crucial plank underpinning the day-to-day lives of most Australians. People need their car to get to work, to take care of loved ones and to enjoy their pastimes. The purchase of a car is also transaction that must be conducted honestly and fairly, and yet our inquiries to date have revealed practices in relation to car lending that appear to depart from these standards.
“Practices in relation to consumer credit products other than home and car loans are also likely to be explored in the first round of hearing. One such product, which has been the focus of recent regulation and inquires, is the credit card.”
Noting that there were around 16.7 million credit and charge card accounts in existence in Australia in November 2017, with total balances of around $52.2 billion, the senior counsel assisting said that “exploration of the practices of credit providers who promote and approve applications for credit cards is therefore important”.
Ms Orr concluded: “Of course, not every issue that arises in consumer lending, and upon which the commission will ultimately report, can be the subject of hearings and witness testimony... a great deal of the commission’s work will be conducted through the painstaking task of extracting and reviewing documents and through regular consultation with stakeholders, whether they be members of the public, the regulators or the instructions themselves.”
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