Is ANZ being singled out for cruel and unusual punishment?
Commerce and consumer affairs minister Scott Simpson. Source: Wikipedia.
Parliament’s finance and expenditure committee (FEC) is recommending that the government ring-fence the existing class action against ANZ Bank New Zealand and ASB Bank from a proposed retrospective law change.
Since ASB has agreed to settle the case against it for $135.6 million, effectively that means a carve-out for the case against ANZ only.
This class action claim has been moving through the courts for more than four years.
My guess is the government will agree to this – it does have a majority on the FEC and it would avoid the political odium of being seen to side with the nation’s largest bank, a bank owned by an Australian bank, against its customers, ordinary NZ citizens.
Certainly, commerce minister Scott Simpson has said the government will accept the FEC recommendations and that the “government parties agree” with the retrospectivity not being applied to ANZ.
Scott said the retrospective element of the bill “has at times overshadowed the broader purpose of these reforms,” which he said is to “restore common sense to lending, reduce unnecessary red tape, and ensure responsible borrowers can access finance when they need it.”
Continuing with retrospective legislation is still something many would oppose, including me, but excluding the ANZ case will take most of the heat out of the opposition.
Is retrospective legislation ever justified?
The FEC’s report notes that it had received 1,543 submissions from “individuals or groups” opposing the retrospective measure and just 15 submissions from “individuals or groups” supporting it, and my guess is those 15 were all bankers.
The weight of public opinion ought to be plain to the government.
“While retrospective law change is unusual, in this case I believe it is justified,” Simpson said.
“The intent has always been to fix bad law and ensure the courts have the discretion to reach fair and equitable outcomes,” Simpson said. Was it bad law? I beg to differ.
The Credit Contracts and Consumer Finance Act (CCCFA) had already been changed from December 2019 to remove the penalty, which had been that no lender could collect fees or interest from a customer if that lender had failed to provide the borrower with accurate details about the credit contract for the period its failure existed.
The amendment the government has proposed would make this removal of penalty retrospective to June 2015.
The carve-out for ANZ covers only the period from June 2015 to December 2019 and any new claims that might emerge against it or any other bank from that period would be subject to the retrospective law change.
The nub of the case
The case against both banks relates to their failure to provide accurate information about loan variations – in ASB’s case, it failed to provide any documentation, while ANZ’s information had been based on a faulty calculator.
“We decided that the class action against ANZ and ASB should be explicitly excluded from the effects of the retrospective provision,” the FEC’s report says.
It noted the ASB settlement, and that it needs the High Court’s approval, which could take several months, and said that its recommendation would have no impact on any settlement agreement.
The FEC recommendation must come as a bitter blow to the NZ Bankers Association which had scare-mongered that failure to pass the retrospective legislation could cost the NZ banking system up to $12.9 billion or more.
When you realise that the big four Australian-owned banks account for about 88% of the banking system and that ANZ is the largest and ASB the second-largest bank by assets, and observe the ASB settlement amount, it should be obvious how risable the NZBA claim was.
I have previously mused that perhaps the banks had been sitting on mountains of undisclosed errors and omissions committed within that specific four-and-a-half-year period, such was the hysteria the NZBA had applied to its demand for retrospective law.
Are there more banking scandals lurking?
However, even if all the banks were sitting on breaches of the CCCFA – and remember, the crucial period for which this particular penalty was available was between June 2015 and late 2019 – it would be impossible to get anywhere near that scary $12.9 billion figure.
My guess is that if there had been any such skeletons in banking closets, they would have emerged by now.
We will soon find out if, after the amendment has passed and takes effect, any more cases from that historical period emerge.
The NZBA’s press release welcoming the FEC recommendation did acknowledge that “we are disappointed that the government has decided to exclude the ongoing court cases.”
“Between 2025 and 2019, any lender who made even a small mistake in the information provided to borrowers, like getting their middle name wrong, could be subject to a draconian provision in the law that, on one interpretation, would make them repay all the interest and fees paid until the error was corrected,” the NZBA release quotes its chief executive Roger Beaumont as saying.
“That consequence would be totally out of proportion with the technical legal breach, especially if there was no harm to the consumer.’
That is exactly the interpretation of the law that the class action is based upon.
Not just a wrong middle name
The NZBA’s chosen example, of course, is hugely disingenuous; ANZ didn’t just get someone’s middle name wrong, it provided something like 100,000 customers with incorrect information about the amount of interest they were required to pay.
Because ANZ had been either too lazy, or lacked the proper systems, to check the results achieved by its faulty calculator.
While about 100,000 customers were impacted, ANZ has succeeded in getting the courts to whittle that number down to about 17,000 – I’m still trying to establish why.
At least one lawyer has told me they thought the punitive nature of the 2015 to 2019 penalty was far too draconian and out of proportion to the harm suffered by customers – that’s certainly ANZ’s own view.
But when you consider the huge power imbalance between a bank which had $155.67 billion in assets at June 30, and the capacity of each individual customer’s resources, it doesn’t seem draconian to me that the bank should be held responsible for ensuring its communications with customers about their loans are accurate.
And if you are to hold such a bank accountable, the penalty for failures needs to be meaningful.
ANZ reported a net profit of $1.37 billion for the six months ended March and so will likely report an annual profit well in excess of $2 billion.
The $35 million penalty it has already paid in refunds to customers on the orders of the Commerce Commission just doesn’t look like a meaningful penalty to me.
Should the yardstick be harm to an individual or a bank’s systems?
ANZ, of course, wants everyone to focus on the actual monetary harm suffered by individual customers as a result of its failure to ensure the accuracy of its systems, rather on what is an appropriate and meaningful penalty for its failure.
The NZBA still argues that the retrospective law change doesn’t stop consumers or regulators from taking action against lenders for disclosure breaches.
My argument is that the law change allows banks to treat the risk of them breaching disclosure requirements as just a cost of doing business, rather than as something they should never allow to happen.
LPF, the litigation funder backing the class action, is, of course, delighted by the recommendation.
It “recognises what legal experts, consumer advocates and business leaders have all said for months – that applying a retrospective change in law to an active court case being taken on behalf of ordinary New Zealand customers was never in the public interest and lacked any credible rationale.”
They are arguing their own book, of course, but I do agree with them.
“We welcome the select committee’s recognition that parliament should not intervene in an active court case,” said Scott Russell, the lawyer for the plaintiffs in the class action.
“This was in the face of extensive lobbying by the banking sector to have the retrospective change apply to the banking class action.”
No justification for retrospectivity
Russell said there was never “any credible rationale” for applying the retrospective change to the class action.
“Every justification for making the proposed change has proven to be false.”
ANZ expressed its disappointment and claims it is being “singled out” because the law change will be retrospective for all other lenders – of course, it won’t affect ASB’s settlement and reaching a similar settlement has always been available to ANZ.
“It’s good that MPs agree the law is potentially unfair and want to change it for the period from 2015 to 2019. But to be consistent, they should have changed it for all,” said chief executive Antonia Watson in the ANZ press statement.
“It’s surprising that MPs are saying its OK for a court case to go ahead under what was recognised as potentially bad law by parliament in 2019 and confirmed again by the select committee,” Watson said.
“It sets a poor precedent to exclude a claim against one entity from legislative amendments. Whatever happened to the fundamental legal principle that everyone should be treated equally before the law?”
In a funny kind of way I completely agree with Watson on that last point – retrospective law is a very bad idea and so parliament should not let any other banks off the hook if they were found to be in breach during those four-and-a-half years.
But no, I don’t think ANZ has been singled out for cruel and unusual punishment.
Disclosure: I’m one of the about 100,000 customers affected by ANZ’s faulty calculator but I don’t know whether I’m included in the remaining 17,000 in the class action.