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First royal commission hearing to focus on home loans

The first hearing of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will look at home lending.

Speaking at the initial public hearing in Melbourne this morning (12 February), the senior counsel assisting, Ms Rowena Orr QC, outlined some of the details of the work already done by the commission as well as the work yet to come.

Ms Orr revealed that more than 385 submissions were received through the online form for information, with nearly half (49 per cent) related to banking.

Further, the lawyer revealed that 31 per cent related to personal finance; 17 per cent related to superannuation; 13 per cent related to small business finance; 12 per cent related to mortgage brokers; and 9 per cent related to financial advice.

The vast majority (84 per cent) of submissions related to “misconduct or conduct of financial services entities that falls below community standards and expectations”.

Ms Orr commented: “Some themes have already emerged from the public submissions in relation to misconduct or conduct that falls below community standards and expectations. 

“We have seen a number of submissions about topics such as financial services entities acting on falsified documents, the provision of inappropriate financial advice, inappropriate lending and the delay in processing insurance claims. 

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“In relation to culture and governance practices, we have seen a number of submissions that raise the issue of conflicts of interest in connection with the practices of representatives of financial services entities. These submissions refer to matters such as incentive-based remuneration, which is regarded as encouraging such representatives to secure an outcome that is not necessarily appropriate for the consumer, such as a loan for an amount in excess of the amount sought. They also refer to commissions payable to a financial adviser by a financial instruction for referring its products to the consumer.”

Buying a property “perhaps the most stressful financial transaction”

The senior counsel assisting went on to reveal that the first round of hearings, which will commence in approximately one month's time, will relate to home lending. 

She told the commissioner of the inquiry, Justice Kenneth Hayne: “Commissioner, you have referred to the preamble to the terms of reference which refers to the right of all Australians to be treated honestly and fairly in their dealings with banking and financial services providers. The first round of hearings will consider whether consumers are enjoying this right when it comes to lending. 

“[O]ne of the themes that has emerged from the public submissions through the commission website is inappropriate or unsuitable lending.

“The focus for the first round of hearings will be on consumer lending and practices. It is likely that this topic will be examined in the context of a number of credit products, such as home loans, car loans and credit cards.” 

Ms Orr noted that the first research paper issue by the commission “indicates that home loans are the largest set on the books of authorised deposit-taking institutions [ADIs], comprising around 42 per cent of the assets of such institutions as at the September 2017 quarter”, that there was a total of $1.07 trillion in finance for owner-occupied housing as at November 2017 and that “around 5.8 million households” had a home loan with an ADI.

She therefore commented: “These figures reveal the significance of home ownership for the economy, but they do not necessarily reveal the importance of home ownership for the average Australian for whom the purchase of a property is likely to be the most substantial and perhaps the most stressful financial transaction of their life. The need for honesty and fairness in this context is paramount.  

“The commission will hear evidence of events involving certain financial services entities in the context of home lending that suggest that consumers have not always enjoyed the right to be treated honestly and fairly when it comes to home loans.

“Some of these events may have involved breaches of the law, while others may have involved departures from community standards and expectations.”

More to come.

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