Case shows banks may need controversial law change for more recent lending errors

Friday, 15 August 2025

Tough lending laws were designed to punish exploitative lenders, but Commerce Minister Scott Simpson says they are punitive and punish trivial mistakes.

Controversy surrounds a proposed retrospective lending law change that would protect the ANZ and ASB banks from a multimillion-dollar compensation claim for loan disclosure mistakes they made between 2015 and 2019.

But a recent Banking Ombudsman case suggests banks may need the law for more recent lending errors.

The proposed retrospective law change, announced by Commerce and Consumer Affairs Minister Scott Simpson in April, would limit the liability ANZ and ASB have under a class action being taken against them by thousands of their borrowers.

The justification for making the proposed law retrospective came not only from the ANZ and ASB class action, but also from disputed figures provided to MPs by the Reserve Bank Te Pūtea Matua.

These appeared to suggest banks may have more lending law mistakes that could pose a $12.9 billion risk to the financial system.

The threat was posed because the law as it stands may require lenders to pay back all interest and fees on loans on which they had failed to meet all their legal disclosure obligations.

ANZ chief executive Antonia Watson reiterated her claim at select committee that the bank did not make super profits.

Banking Association chief executive Roger Beaumont told a select committee earlier this month that any lender making any mistake, such as “getting a phone number wrong”, could be subject to draconian penalties that went far beyond compensating borrowers for their actual losses.

Now, a recently published case shows an unnamed bank stuffing up a loan, and secretly trying to correct the errors, only to be spotted by the borrower.

Banking Ombudsman Nicola Sladden’s case note, which did not name the bank, said a couple had a home loan with a bank, but applied in May last year through a mortgage broker for a term loan of $20,250 from the bank.

However, the bank failed to set up the payments correctly.

The bank then made a manual adjustment in June to fix the mistake without informing the couple.

Banking Ombudsman Nicola Sladden is responsible for investigating complaints people make about their banks to the ombudsman scheme.

Then in July, the bank restructured the couple’s home loan, and incorrectly shortened its term, increasing repayments.

When the couple pointed out the error, the bank made another error in the amount it refunded.

The bank’s terms and conditions entitled it to make the manual payment in June, although it should have communicated what it did to the couple. The bank acknowledged the errors it made to the loan term and refund amount, although its response to these matters was slow.

The bank, which the ombudsman found was slow in its handling of the couple’s complaint, offered $3110 for the stress and inconvenience it had caused, and also offered to restructure the couple’s lending, and to waive the break fee and restructuring fee. They accepted.

Every one of the big four Australian-owned banks has made compensation payments to borrowers as a result of disclosure errors. So has Kiwibank.

Both ANZ and ASB admitted lending law disclosure breaches in 2015 and entered into settlements with the Commerce Commission in 2021, paying compensation of $35 million and $8.1m respectively.

ANZ’s mistake was to undercharge around 17,000 borrowers, ANZ chief executive Antonia Watson told MPs last month at a hearing of the Finance and Expenditure Select Committee.

However, those settlements did not require them to make full refunds of cost of borrowing, leading to the class action being launched.

Parliament is sovereign, and can pass retrospective laws.

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

The settlements for those errors with the Commerce Commission did not, however, involve the repayment of all fees and interest they had charged on the loans on which they made errors.

But the settlement between the commission and the South Korean Kookmin Bank in 2023, which made loan disclosure errors, did involve it paying back all the fees and interest it had charged.

That cost the bank $11m in refunds equating to nearly double its annual operating income.

Underlining that banks make errors, and because they are large, those errors can cost their customers a lot of money, ASB revealed it had set aside another $64m for remediation, a term used to cover refunds and compensation for customers who have been overcharged.

Its chief executive, Vittoria Shorrt, did not say what the issues that needed fixing were, but said: “We're a large business and some of our issues can be large.”

But, she said: “The key thing as I say when we come back to it if we find a mistake we'll fix it.

Banks began lobbying for the retrospective law changes in 2016.