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Consumer Action Law Centre, CHOICE and Legal Aid NSW today published submissions in response to the first round of hearings before the Royal Commission into Misconduct in the Banking, Superannuation and Finance Sector on consumer lending and add-on insurance.

Consumer Action Law Centre (Consumer Action) argues in its submission (available at: https://policy.consumeraction.org.au/2018/04/03/submission-on-round-1-hearings/) that directors of the big banks may have breached their director duties under the Corporations Act by failing to have systems in place to prevent systemic breaches of financial services law.

It submits that the case studies of Robert Regan, Irene Savidis and Nalini Thiruvangadam involved numerous breaches of the law which were systemic in nature. Consumer Action is concerned that similar breaches might have affected hundreds of thousands if not millions of other people. Mr Regan, Ms Savidis and Ms Thiruvangadam are represented by Consumer Action.

The submission also covers the need for:

· increased penalties to ensure banks cannot profit from misconduct (including disgorgement of benefits illegally obtained, and fines of up to 10% of annual turnover);

· better compensation for victims of banking misconduct where banks breach irresponsible lending laws;

· stronger powers and more resources for the Australian Securities and Investments Commission to enforce the law;

· banks to take responsibility for the sales practices of their brokers and other salespeople; and,

· funding for free legal advice and financial counselling to assist victims of misconduct.

CHOICE’s submission (available at: https://www.choice.com.au/consumer-advocacy/policy-submissions) concentrates on mortgage brokers and other intermediaries, including:

· unacceptable risks created by conflicted incentives structures;

· inadequacy of self-regulation;

· the need for a ‘best interests duty’ for brokers;

· the limitations of disclosure; and

· risks of outsourcing the sales process and improper financial advice.

NSW Legal Aid, Financial Rights Legal Centre (Financial Rights) and Financial Counselling Australia (FCA) echoed calls by CHOICE and Consumer Action for improved responsible lending practices and tougher penalties for misconduct. Financial Rights Co-ordinator Karen Cox was the first witness to appear at the Royal Commission consumer lending hearings, providing evidence of the harm that results from irresponsible lending.

Quotes attributable to Gerard Brody, CEO Consumer Action Law Centre:

· “Accountability of boards and senior management is essential to improving banks’ lending practices. We are urging the Royal Commission to consider whether bank directors have breached directors duties of care and diligence by failing to have systems in place to prevent systemic misconduct. Breach of director duties can result in individual fines and even disqualification.”

· “There needs to be tougher penalties and better compensation for customers when banks break the law. Irresponsible lending can ruin people’s lives, and often those who pay the highest price are those least able to afford it. Wavier of debt, and release of security, is appropriate where lenders breach irresponsible lending laws.”

Quotes attributable to Alan Kirkland, CEO CHOICE:

· “The promises that mortgage brokers make simply don’t match reality. Too often we’ve seen easy profits and self-interest put ahead of the interests of people”

· “Mortgage brokers should be required to provide advice that is good for their clients. That’s simply not the case now.”

· “We also need to put an end to a model that’s driven by sales commissions. If mortgage brokers are providing a good service, then consumers will have no problem paying for it. Hiding commissions hides the true cost of a mortgage and leads to conflicts in the advice consumers receive.”

Quotes attributable to Brendan Thomas, CEO Legal Aid NSW

· “Too often, when brokers and bankers do the wrong thing, it’s ordinary families who face the consequences.”

· “We see people through our doors every day who have been devastated by debt and are trying to pick up the pieces. The financial services industry can do better.”

· “Legal Aid NSW strongly supports a ‘best interests’ test for brokers, to be enshrined in law. The community rightly expects that where a broker is acting on behalf of a customer, the broker will act in the customer’s best interests. A best interests test is a straightforward move that would help safeguard consumers’ rights.”

Quotes attributable to Karen Cox, Co-Ordinator Financial Rights

· “We see the harm caused by irresponsible lending every day at our organisation. Irresponsible lending can lead to serious financial and emotional stress, family breakdown and going without essentials like rent and food.”

· “During the hearings, we saw evidence of banks failing Australians throughout the customer journey. From the design of dangerous financial products to inadequate dispute resolution, Australian bank customers have been getting a raw deal.”

Quotes attributable to Fiona Guthrie, CEO Financial Counselling Australia

· Financial counsellors provide a lifeline to Australians who have been given loans they cannot afford.

· Financial counsellors provide independent, free advice to those who are trying to get their debts under control.

CHOICE, Consumer Action, Financial Rights and FCA are available for comment. We also have clients available to share their stories.

The next round of hearings will commence before the Commission on 16 April 2018.