A multi-million dollar class action claim alleging ANZ and ASB ought to refund some 150,000 customers money they shouldn't have taken and shouldn't keep, has been filed at the High Court in Auckland.
The case is being funded by Australian litigation funder CASL and New Zealand litigation funder LPF Group. The cases against both banks relate to issues they have already settled with the Commerce Commission over. Legal fees and services payable to the funders would total between 16% and 23.5% of any money the banks were to cough-up.
The case is being brought under the Credit Contracts and Consumer Finance Act (CCCFA). Banking Class Action, the group behind the case, argues the two banks should refund interest and fees they were not entitled to charge due to breaches of their disclosure obligations.
“The CCCFA is very clear. If a bank fails to comply with its disclosure obligations, it is not legally entitled to charge interest or fees on the affected loan until the failure is remedied. To the extent a bank receives interest or fees it is not entitled to, it must refund or credit those amounts to the customer as soon as practicable. In this case, the banks have continued to charge interest and fees despite not being entitled to do so. The banks’ failures to refund their customers constitute serious breaches of the provisions of the CCCFA," says Banking Class Action solicitor Scott Russell.
"It is estimated that approximately 150,000 customers are affected. Some of those customers may have been paying interest and fees they were not liable for over periods as long as five years," Banking Class Action says.
ANZ & ASB to defend claim
An ANZ spokesman says the bank hasn't yet seen a copy of the claim, but will be defending it.
"This issue resulted in some customers underpaying their loans by an average of $2 a month for a short time. ANZ identified the issue and reported it to the Commerce Commission in 2017. ANZ carried out its own remediation and then a second remediation following a Commerce Commission investigation and settlement. More than $35 million has been paid to customers. ANZ considers we have fairly remediated our customers and the matter has already been subject to regulatory oversight and resolution. We will be defending the claim," the ANZ spokesman says.
In a statement ASB says the proceedings relate to disclosure obligations under the CCCFA and refer to a settlement agreed between ASB and the Commerce Commission published in May.
"The remediation of customers pursuant to the settlement with the Commerce Commission is continuing and is unaffected by the filing of the High Court proceedings. ASB intends to defend the High Court proceedings," the bank says.
A spokeswoman for Banking Class Action says the case has five representative plaintiffs, is asking affected customers to sign up, with the case to be run as an opt-out class action. One of the representative plaintiffs is ASB customer Anthony Simons.
“ANZ and ASB think by admitting to breaking the law, the consequences don’t apply to them. Hiring expensive lawyers and agreeing to significantly reduced payments with regulators means the banks have avoided repaying what they owe to their customers. Banks are the first to enforce the rules when they are owed money, yet they ask for leniency when they break the law. If we do not challenge this kind of behaviour, we are condoning it and allowing it to continue," says Simons.
ANZ's Commerce Commission settlement the biggest from a bank
The claim against ANZ relates to the bank admitting to breaching its responsible lending obligations, in a case where the bank coughed up $35.4 million for customers in a settlement with the Commerce Commission. It's the biggest settlement the Commission has had with a single bank.
The settlement came after ANZ, in May 2018, confirmed it had misstated the amount of interest on loans from 30 May 2015 until 28 May 2016 as a result of a coding error within a loan calculator used by its frontline bank staff. The issue affected more than 100,000 personal and home loan customers who agreed with the bank to vary their loans. ANZ self-reported the issue to the Commission in 2017.
As part of the settlement, ANZ agreed to admit in High Court proceedings that it engaged in conduct that breached its responsible lending obligations.
The claim against ASB also relates to an issue over which the bank has settled with the Commerce Commission. ASB admitted failing to ensure its systems and processes were sufficient to ensure required information was given to more than 73,000 home and personal loan customers who made changes to their loans.
ASB agreed to repay $8.1 million to customers who may have been affected by breach of its lender responsibilities under the CCCFA. According to the Commission, ASB's self-reported error occurred when its standard operating procedure wasn't consistently followed for customers making changes to the relevant repayment date, amount and frequency of their existing loan agreements either in branch or over the phone. This meant some customers may not have been given information about these changes when variation disclosure was required by the CCCFA.
The Banking Class Action spokeswoman says the group aims to build on the good work the Commission has done. It's taking a private civil action on behalf of individual consumers to recover the individual refunds it think they are due under s22 of the CCCFA.
"The Commerce Commission has a remit as a market regulator whose goal is to act in the public good to ensure markets work well and consumers and businesses are confident. The Commission has enforcement criteria that guide their decision as to how best to prosecute an investigation. The Commission acts at a market level in order to correct unlawful market behaviour and incentivise compliance with the law and achieved significant multi-million dollar settlements with the banks that achieved these ends, it doesn’t generally act on behalf of individual consumers," she says.
'Really hard' to calculate how much is involved
Banking Class Action is describing the claim as a multi-million dollar class action. Their spokeswoman says at this stage "it's really hard" to calculate exactly how much is involved as it's not known what the 150,000 customers loans were in terms of values, interest rates, variations etc.
"What we do know is it's many millions. If successful, the customers will receive the amount paid by the bank, less any project costs such as legal fees and the services fee payable to the funders, which will be split [between] CASL and LPF Group. This varies between 16% and 23.5%."
LPF Group is managing this case on behalf of both litigation funders.
“The recent Supreme Court decision that approved opt-out class actions expressly had consumer related claims in mind. This is an excellent example of an important case that should be taken,” says LPF Group director Phil Newland.
The Supreme Court ruling Newland refers to was Southern Response Earthquake Services Ltd v Ross. According to Banking Class Action, it ruled courts have jurisdiction to make opt-out orders in New Zealand, noting these are consistent with the objectives of class actions in improving access to justice, facilitating efficient use of judicial resources, and strengthening incentives for complying with the law.
In a previous case Fair Play on Fees, a group that launched legal action on behalf of tens of thousands of bank customers in 2013 over alleged excessive fees, ultimately settled with the banks in confidential settlements in which the banks didn't admit any liability.
Below are explanatory notes provided by Banking Class Action.
The Banking Class Action is being run as an opt-out class action by Scott Russell of Auckland law firm Russell Legal and barristers Davey Salmon QC and Ali van Ammers of Mills Lane Chambers.
The CCCFA exists to protect the interests of consumers when they borrow money by mandating responsible lending and requiring disclosure of key information to borrowers when they enter into or vary loan contracts to enable them to understand what they have agreed to and make informed choices. It requires banks to act responsibly and fairly at all times.
Ensuring lenders like ANZ and ASB comply with consumer protection laws like the CCCFA is fundamental to addressing the power imbalance that exists between a bank and its customers. When borrowing money or dealing with their bank, it is critical customers are able to trust that the information they receive from their bank is accurate, and that if a mistake happens, it will be addressed in a timely and transparent way.
Both ANZ and ASB have previously acknowledged that they failed to provide accurate information to personal and home loan customers who varied the terms of their loans during particular periods, as required under section 22 of the Credit Contracts & Consumer Finance Act (CCCFA):
- ANZ provided inaccurate information to certain customers who varied their loans between 30 May 2015 and 28 May 2016 due to an issue with a loan calculator which resulted in interest being miscalculated.
- ASB is unable to confirm that it sent any written disclosure information to certain customers who made specific changes to their loans between 6 June 2015 and 18 June 2019.
The CCCFA clearly outlines the consequences of failing to provide accurate and timely information, which were put in place to provide a strong incentive to all lenders, including banks, to comply with their disclosure obligations:
- Section 99(1A) states a customer is not liable for the cost of borrowing (interest & fees) in relation to any period which the bank is in breach of its disclosure obligations.
- Section 48 states that if a bank has received payments from a customer which it was not entitled to receive, it must refund or credit these payments to the customer as soon as practicable.
The Banking Class Action seeks orders requiring the Banks to refund interest and fees they were not entitled to charge or keep on home and personal loans due to breaches of their disclosure obligations.
It is estimated that approximately 150,000 customers are affected. Some of those customers may have been paying interest and fees they were not liable for over periods as long as 5 years. Customers may qualify to participate in the Banking Class Action if they had a home or personal loan with ANZ during the period 30 May 2015 - 28 May 2016 or ASB during the period 6 June 2015 – 18 June 2019 (Relevant Periods).
Both ANZ and ASB raised the disclosure issues that occurred over the Relevant Periods with the Commerce Commission. They entered into settlement agreements with the Commission pursuant to which they admitted to breaches of section 9C(2)(a)(iii) of the CCCFA, which requires creditors to exercise the care, diligence, and skill of a responsible lender at all times in all subsequent dealings with a borrower in relation to their loan. (They were able to avoid admitting breaching section 22.)
ANZ and ASB agreed to make certain remediation payments to affected customers, which have been made. However, customers have only received a fraction of what they are entitled to under sections 48 and 99(1A). The communications the Banks sent to customers advising them of the payments were extremely vague and actively dissuaded customers from querying the payments or taking further action, using words like “there’s nothing further you need to do”.
Importantly, the settlement agreements entered into with the Commerce Commission very clearly state that the rights of affected customers to take further legal action against ANZ and ASB for their failures to provide accurate and timely disclosure information were not compromised by the settlements with the Commerce Commission.
Section 99(1A), which was introduced under the John Key National government in 2015, has been subject to considerable debate:
- 16 May 2016: a letter was sent to the Ministry of Business, Innovation and Employment (MBIE) from the NZ Bankers Association on behalf of its members (including ANZ and ASB). This letter demonstrates the industry has a clear understanding of their disclosure obligations under the CCCFA and the potential impact of failing to comply and states “A failure to comply with s 991A creates a duty to refund the “COB” (costs of borrowing)”. Despite being aware of the effect of s 99(1A), ASB and ANZ have chosen not to comply with it and s 48 for several years.
- November 2016: MBIE released a discussion paper canvassing options for amending s 99(1A).
- December 2016: the NZ Banking Association made a submission to MBIE, claiming that under s 99(1A) the financial impact of failing to comply with disclosure obligations was too harsh, was not aimed at them, imposes unnecessary and inappropriate penalties, and therefore should be repealed retrospectively.
- June 2018: Cabinet decided to confirm the previous government’s decision to amend the CCCFA to allow lenders to apply to the Court for relief from the consequence of s 99(1A). The amendments were included in the Credit Contracts Legislation Amendment Act 2019 and were inserted into the CCCFA as sections 95A and 95B. However, they do not apply retrospectively. The ability to apply to the court for relief from the effects of s 99(1A) is only available in relation to costs of borrowing payable after the changes came into effect in December 2019.
The Hayne Royal Commission Report into the culture and conduct of Australasian retail banks highlighted significant misconduct issues and a culture that lacked accountability. The report identified the need for risk and compliance teams to install clear frameworks with regards to regulatory breaches to ensure there is no delay with informing clients or delivering remediation.
The Supreme Court in Southern Response Earthquake Services Ltd v Ross ruled Courts have jurisdiction to make opt-out orders in New Zealand, noting these are consistent with the objectives of class actions in improving access to justice, facilitating efficient use of judicial resources, and strengthening incentives for complying with the law.