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ANZ reveals home loan fraud issue in inquiry submission

Sarah Danckert, March 28 2016, SMH Business Day


ANZ has compensated nine clients, who were defrauded or given misrepresentations by internal employees, to the tune of $2.6 million without reporting it to the corporate regulator, the bank's own submission to an inquiry says.

ANZ revealed the fraud in a series of answers to questions on notice requested by the joint parliamentary committee overseeing the inquiry into impairment of consumer loans.

The explosive response to questions on notice also shows that until March 2011, nearly one in four loans held by the bank were low doc loans.

The insight into fraud and misrepresentation within ANZ's home loan division comes amid a wave of scandals rocking the bank, including the alleged rigging to the bank bill swap rate and a Fair Work claim that shed light on the toxic culture within the bank's traders.

At a hearing in November, ANZ was asked by the parliamentary inquiry to provide data on how many loans and the value of the loans that were subject to lender mortgage fraud.

"Since October 2011, we have identified nine files subject to internal lender fraud or misrepresentation. These matters may or may not have been subject to a customer complaint," ANZ said in its answers.

"ANZ was required to provision a total of [about] $2.6 million to cover losses associated with those nine files (October 2011 to December 2015)," ANZ said.

The bank revealed it had made no breach reports to the Australian Securities and Investment Commission in relation to lender mortgage fraud. It did not explain why, but did say in its answers that the term "lender mortgage fraud" was "unclear" and "not defined for regulatory or complaints reporting process".

An ANZ spokesman also told Fairfax the nine files referred to in the questions on notice "relate to maladministration rather than specific fraud".

"It wasn't one employee and discipline ranged from dismissal through formal warnings and additional counselling," the ANZ spokesman said.

He said employees dismissed for fraud were reported to the police, but it is unclear whether any employees in this instance were actually reported to the police.

"ANZ proactively reports all matters to ASIC that it is required to report as we do for any other regulator," the ANZ spokesman said.

ASIC declined to comment.

ANZ said it had identified 146 complaints over an eight-year period using the terms "falsified" or "altered" files and "fraud" as well as "inappropriate lending" or "inappropriate lending/maladministration" – but only where those keywords were recorded in the description field of complaints.

Of those 146 clients, ANZ paid compensation to 30 clients.

ANZ's answers reveal on top of the nine victims who had been paid out a further five customers who had complained about maladministration were currently unresolved.

The questions to answers on notice also reveal that at the height of the financial crisis in September 2008, 24 per cent of ANZ's Australian home loan portfolio were low doc loans. The percentage of low doc loans in ANZ's Australian home loan portfolio ranged between 24 per cent and 25 per cent until March 2011, before falling to 21 per cent in September 2011.

ANZ told the inquiry it had not misled its shareholders when it said low doc loans made up 2 per cent of its total retail portfolio in July 2007. In March 2007, low doc loans made up 18 per cent of ANZ's home loan portfolio.

"ANZ stands by the information provided in our annual reports. The 2 per cent figure referred to in the annual report was calculated on a different basis, namely as a percentage of the total retail portfolio," ANZ said.

Statistics provided by ANZ show it gradually reduced the share of low doc loans in its home loan portfolio between September 2011 and September 2015. By September last year, the percentage of low doc loans in ANZ's Australian home loan portfolio had fallen to 7 per cent.

"Our proportion of Lo-Doc lending has dropped significantly as we are no longer actively engage in that market," the ANZ spokesman said. 


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