After getting rejected for NAB’s Vacationer Program this year, I thought it would be best to take out my frustration on them through a hit-piece cleverly disguised as an ‘unbiased article’. My attempt at misdirection is not one NAB would be too unfamiliar with. After all, their community driven ‘Introducer Program’ was simply a thinly veiled loan-shark system that cost hard-working Australians billions of dollars. As we take a deeper dive into Australia’s biggest scandal since Steve Smith rubbed a yellow object on a cricket ball, there remains no doubt that one of Australia’s biggest banks has tarnished its reputation for a very long time.
The Introducer Program
NAB’s introducer program was initially launched in 2000 and has since been deemed one of the largest referral programs in the credit industry. Under this program, a third party could ‘spot and refer’ a potential customer to a NAB home loan in exchange for a commission. It is currently estimated that this system was responsible for over 46,000 loans valued at 24 billion dollars between 2013-2016.
The vision for the program was that these ‘third parties’ were to be legal entities such as accountants or real estate agents, with tangible financial links to future consumers.
However, to take part in the scheme, ‘introducers’ would only be required to provide NAB with the potential customers’ names and contact details. For them to provide additional information and documents to NAB, they would require a credit license.
Seems pretty air-tight, right?
Wrong. When combined with ludicrous commission payments for introducing consumers to an NAB banker, the bank started to deal in murkier waters. Specifically, with an absurd cash incentive, the introducer program garnered the attention of more conventional yet unregistered businesses. In fact, it is known that both a gym owner and tailor referring over $139m worth of loans, with many NAB officials scrambling to get the deals over the line for a fat commission check.
Many of these deals were questionable at their absolute best. At their absolute worst, they were a complete and utter sham, suckering loyal clients into lucrative investments they knew they could not afford. This type of practice draws comparisons with NAB to a hawking firm or a boiler room, not something one of the bigger banks in Australia wants to be associated with.
NAB operators did not as much bend the rules as they did break through them with a sledgehammer, falsifying documents and accepting cash bribes in order to get loans approved. In fact, just last year NAB banker Andrew Matthews was jailed for 8 months for defrauding NAB of an approximate $640,000 through the introducer program. To be fair to him, much of the dirty money was invested back into the community. By community, I actually mean a brand-new Ferrari F430, while many of his customers were struggling to reach end’s meets with the growing pressures of mounting debt. He was able to obtain this by falsely claiming a friend introduced them and was therefore eligible for a healthy 0.04% commission on the loan value.
ASIC to the Rescue
In 2019, the Australian Securities and Investment Commission (ASIC) found NAB guilty of breaching the Credit Act; which allowed aforementioned businesses such as gym owners and tailors benefit from the program. One of the key reasons the National Credit Act was ratified was to ensure consumers were protected. Specifically, it aimed to ensure that third party referrals maintained their integrity and accurately represented a consumer’s financial details. In the case where they were falsified (as with NAB) to allow loans to be approved, such that commissions are paid despite the consumer’s true financial position not being suitable for said loan; this would be a breach of the credit act.
The statement was as follows:
“The regulator alleges NAB breached s31(1) of the National Consumer Credit Protection Act 2009 (National Credit Act), which prohibits credit licensees from conducting business with parties engaging in credit activity who do not have an Australian credit licence.”
ASIC maintains that the civil penalty NAB should face was to be a maximum fine of $500-535m, as well as a number of sackings and potential jail time for bankers including a multitude of branch managers.
However, these findings additionally created ripples throughout the banking sector that would not just be felt by NAB. A year-long Royal Commission eventually led to 76 recommendations from commissioner Kenneth Hayne that were set to be drafted into law. These included widespread changes into the conduct revolving around mortgages, general organisational culture and renumeration. For example, the legislation introduced new rules about how annual fees are charged by financial supervisors as well as putting a cap on commissions to disincentivise the green lighting of extreme investments. However, many of these laws were not set to be officially drafted until the end of 2020, leaving the situation delicately poised given the event thus far.
Two rounds of legislation stemming from the NAB fallout were due to occur this year – one in July and one in September. However back in May, Treasure Josh Frydenberg announced a delay to such legislation in order to ensure “financial institutions are in a position to devote their resources to responding to the significant challenges posed by the coronavirus”. On the surface, this seems to be a reasonable enough reason to delay; there are more pressing issues to be tended to currently.
However, a full year and a half since legislators gained access to the report and recommendations drafted by Commissioner Hayne, yet only 6 out of the 76 have actually been completed.
These changes (when finally implemented) serve as the only silver lining to NAB’s illegal activities. Here’s to hoping that new legislation puts an emphatic stop to the exploitation of consumers for revenue gain.