NAB faces $500m fine after dodgy loan allegations
NATIONAL Australia Bank could face a potential fine of more than $500 million after the corporate watchdog launched Federal Court action against the lender over a $24 billion "introducer" loan program alleged to be rife with fraud.
In the first court action stemming from referrals by Kenneth Hayne's banking royal commission, the Australian Securities and Investments Commission today alleged that NAB took information and documents supplied to get loans from third party "introducers" who were not licensed to sell credit, The Australian reports.
The behaviour of 16 NAB bankers who accepted potentially fraudulent documents from 25 introducers for almost 300 loans will be scrutinised by the Federal Court.
The court is being urged to slap NAB with penalties of more than $500 million for breaches of the National Credit Act, which bars unlicensed parties from engaging in the selling of credit.
NAB has been grappling with the fallout from revelations of misconduct by bankers in a clutch of western Sydney branches who were hungry to earn bonuses based on how many home loans they wrote.
The royal commission heard that NAB introducers received a commission of up to 0.6 per cent of a loan for introducing a name and phone number to the bank.
An alleged scam in western Sydney was said to have involved a gym owner and a tailor.
Introducers are supposed to come from professional ranks, including financial planners and lawyers.
Since 2000, NAB has operated the banking sector's largest referral program and between 2013 and 2016, the period in question for ASIC's lawsuit, the bank's introducer program generated $24 billion worth of loans.
Under the scheme, which will be shut down on October 1, the introducers were only meant to provide a name and a contact number for a potential customer.
However, an ASIC investigation found that NAB bankers accepted additional information and documentation from 25 unlicensed introducers, which included completed home loan applications, pay slips, copies of customer identification documents and more.
It's alleged some of these documents were false.
Earlier this week former NAB branch manager Mathew Alwan, who is not one of the 16 bankers involved in ASIC's action, pleaded guilty to fraud over his role in an alleged multimillion-dollar scam exploiting the introducer scheme.
ASIC will tell the Federal Court that the introducers' conduct put consumers at risk of fraud and potentially shunted them into loans that were unsuitable. It will allege NAB breached laws by accepting the assistance of unlicensed introducers. Each breach of the Credit Act carries a maximum penalty of between $1.7 and $1.8 million.
NAB chief legal counsel Sharon Cook said the bank would "take this legal action seriously and will now carefully assess the allegations".
"Throughout the royal commission we heard clearly that our actions need to change to meet the expectations of our customers and the community," Ms Cook said, noting the bank had set up a remediation program for affected customers.
Last year, NAB told the royal commission that it expected to pay out "at the lower end of the range of $9 million to $23m" in relation to the program.
The introducer program was recently killed off by NAB acting chief executive and incoming chairman Phil Chronican, who took over from Andrew Thorburn and Ken Henry when the duo resigned in the wake of a shellacking by Mr Hayne in his final report.
The program was shut off to new referrals and by October will no longer exist.
The ASIC action marks the first major court action stemming from a royal commission referral, and the regulator has flagged it has almost 50 more in the pipeline.
Last month ASIC lodged a claim in the Federal Court stemming from the royal commission, alleging ANZ stung customers for more than $50 million as it charged fees to which it was not entitled for nearly 13 years.
NAB reported the fraud ring in western Sydney to police and sacked or showed the door to 21 bankers involved in the scandal, while 100 introducers had their agreements terminated.
However, documents released by the royal commission showed NAB knew about the western Sydney scandal in November 2015, at least three months before it reported the breach to the regulator, far longer than the 10-day window required by law.
NAB's own review of the fraud ring found that bankers were "double-dipping" on bonuses by duplicating and post-dating deals. It also found "kickbacks" between bankers and introducers, who also receive commissions for bringing borrowers to the bank.
NAB also missed "early warning signs" of fraudulent mortgage applications including "inflated salaries" for borrowers with mundane jobs, and out-of-kilter asset valuations and rental appraisals.
This story originally appeared on The Australian and is republished with permission.