ANZ has admitted it does not independently verify the monthly expenses of people applying for a home loan, an approach that would seemingly put the bank in breach of credit laws in Australia.
The bank’s head of home loans, William Ranken, told the banking royal commission on Monday ANZ relied upon a tally of personal expenses of home applicants provided by brokers.
It then checked to see whether those expenses were reasonable estimates by comparing them to the median monthly expenses of Australians with home loans, Mr Ranken said.
Brokers write nearly three-quarters of ANZ’s home loans. In 2017, the bank issued nearly 200,000 home loans with a total value of more than $50 billion.
Under questioning from senior counsel assisting the royal commission, Rowena Orr QC, Mr Ranken said the bank and the broker had separate obligations to verify the ability of their customers to service their mortgages.
This was because individually assessing the expenses of each of their customers would be difficult given the large numbers of customers involved.
“Scalability, I think, presents operational difficulties,” Mr Ranken said. “There are so many variations of people’s circumstance … and the subjective nature of reasonable expenses."
Instead, Mr Ranken said the bank relied on a national benchmark known as the household expenditure measure to verify the monthly expenses listed by the broker on the customer’s application.
He told Ms Orr the bank did not check a customer’s bank account statements to see if their expenses were accurately reflected in the applications.
Mr Ranken said there would be a significant financial and time cost to the bank to implement a customer by expense verification.
Commissioner Kenneth Hayne QC questioned Mr Ranken about his explanation that the bank had such a large cohort of customers, asking him why it didn’t take a worst-case example and use that as a way to test all home loans.
“Let me just make plain what lies behind the question. An available point of view may be that there is a trade-off between administrative convenience and obeying the law,” Commissioner Hayne said. “That’s a very awkward trade-off."
Credit laws ensure banks lend responsibly, including by assessing a customer's income, existing debts and expenses.
Mr Ranken defended the bank’s position, saying: “We take our regulatory obligations very seriously and we want to do that at a reasonable level."
"An available point of view may be that there is a trade-off between administrative convenience and obeying the law."
Commissioner Kenneth Hayne
ANZ's grilling over its home loan practices came after the Commonwealth Bank of Australia, its subsidiary Aussie Home Loans, and National Australia Bank were raked over the coals at the royal commission last week over issues within their separate home lending businesses.
Representatives from CBA and its wholly owned subsidiary Aussie Home Loans admitted serious risk and compliance shortcomings at Aussie. Executives from CBA and Aussie were grilled in particular over how conflicted payments for brokers were handled to ensure customers were not made a secondary consideration to earning commissions.
Late last week, CBA's incoming chief executive, Matt Comyn, wrote to staff to warn them that it was not likely to get any better when the inquiry resumed on Monday morning.
Photo: Peter Braig
CBA executive general manager of retail lending, Clive van Horen, will be called to give evidence late on Monday about the bank's credit card insurance products.
CBA pulled the plug on its credit card protection product earlier this month.
The royal commission also heard last week of an alleged fraud ring operating within some of NAB's branches that allowed some staff to pump up their bonuses by lodging home loan applications underpinned by fake IDs and employment details.
Later this week, the royal commission will hear about ANZ's car lending practices. Westpac and St George will also be in the royal commission's spotlight for their conduct in the vehicle finance sector. ANZ was fined $5 million earlier this year over Esanda's lending practices.
The bank announced on Friday it would suspend it asset finance business, including all new car loans, to retail customers. Its asset finance business for commercial customers remains unchanged.This article was first published by: https://www.smh.com.au/
Author: Sarah Danckert