Kookmin Bank's $11 million refunds to customers heartens lawyer taking on ANZ and ASB

Tuesday, 4 July 2023

The Commerce Commission has scored some notable wins against banks, securing tens of millions of dollars of compensation for customers from the country’s biggest banks.

Kookmin Bank will refund more than $11 million to customers after admitting breaches of loan disclosure rules.

It becomes the latest bank found to have failed to follow loan disclosure rules.

ANZ, ASB, Bank of New Zealand, HSBC, Westpac, and Kiwibank have all had to refund customers for similar breaches.

But the settlement agreement Kookmin signed with the Commerce Commission is raising eyebrows as the bank has agreed to repay the full “cost of borrowing” to many of the nearly 500 borrowers who it failed to provided full loan disclosure documentation to.

ANZ and ASB are being sued in a class action lawsuit claiming the full cost of borrowing on around 150,000 loans on which they failed to disclose everything they should have.

Both banks did make payments to borrowers under settlement agreements with the Commerce Commission, but they did not require them to repay the full cost of borrowing, which included all fees and interest charged to the affected borrowers.

Both banks are defending the class action.

Commerce Commission probe into retail banking competition

The ANZ/ASB case heads to the Court of Appeal next week in a hearing to determine whether the High Court was correct to allow the case to go ahead on an “opt-out” basis.

Only about 500 people signed up to be part of the ANZ/ASB class action lawsuit, but the court ruled the case could be taken in the name of all affected borrowers, though individuals could opt out, if they did not wish to be included.

The claim is being taken by solicitor Scott Russell who welcomed the Kookmin settlement agreement.

”That’s very interesting. It seems that potentially our claim is actually having an effect on the market, and what penalties are appropriate,” he said.

Auckland lawyer Scott Russell is taking a class action lawsuit against ASB and ANZ.

Kookmin Bank’s Auckland-based branch is part of the South Korean Kookmin Bank, and was set up to serve Koreans living in New Zealand.

The settlement agreement followed an investigation by the Commerce Commission.

The commission said the bank admitted to failing to ensure that it provided compliant initial disclosure about its home and personal loans between 2015 and 2021.

That breached its obligations under the Credit Contracts and Consumer Finance Act, the commission said.

The law came into force in 2015, under the National Government led by Sir John Key, ANZ’s current chairman, and was part of a drive to get lower-tier lenders to treat vulnerable borrowers decently.

The clause required lenders to refund all costs of borrowing, meaning fees and interest charged, during a period in which they were in breach of loan disclosure laws designed to ensure borrowers were fully informed about their loans.

When banks realised the threat the law was to them, they lobbied for it to be changed, and the change to be retrospective.

On May 17, 2016, the New Zealand Banking Association wrote to the Ministry of Business, Innovation and Employment (MBIE) to protest the law was unfair because it meant the banks “must refund costs of borrowing in all situations, even if they’ve corrected non-disclosure or there is no material harm to the borrower”.

Announcing the Kookmin settlement, commission chair John Small said such failures created a risk of consumer harm, with many borrowers potentially making uninformed borrowing decisions, or not understanding their hardship, cancellation and dispute resolution rights under the contract.

John Small, chair of the Commerce Commission, says it’s vital for banks to abide by the law.

He said lenders had obligations to provide key information to borrowers before they took out loans.

“These obligations are in place to ensure that borrowers can make informed decisions before entering contracts, reducing the risk for financial harm,” he said.

The settlement agreement Kookmin signed with the commission commits it to paying compensation of $11,029,020 to affected borrowers.

Kookmin had just under $585m in loans at the end of December, its latest public financial statements show.

They also show that the $11m refund equates to nearly double its annual operating income.

In the 12 months to the end of December, its interest income from loans was $21.5m, but after deducting the interest it paid depositors, and adding the income it got from fees, the bank’s operating income was just over $6m.

Small said: “Banks are a key source of borrowing for consumers, with typically large sums of money involved, so it’s vital they abide by the law and are resourced to meet all of their compliance obligations.”

While the other bank disclosure failures were self-reported by banks after they came under greater scrutiny from the Financial Markets Authority and Reserve Bank Te Pūtea Matua, Kookmin’s failings were spotted by the commission in 2021.

The commission said Kookmin Bank would be contacting affected borrowers as part of the settlement and enforceable undertakings.