Go to content

Legal Aid NSW calls for greater consumer protections in submission to banking Royal Commission

4 Apr 2018

Incentives that reward brokers and bank employees for signing up more and more customers to loans are driving breaches of banks’ responsible lending obligations, Legal Aid NSW has warned.

In a written submission to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry following the inquiry’s first round of public hearings, which focused on consumer lending, Legal Aid NSW has drawn on its considerable casework experience in areas including residential mortgages, car finance and add-on insurance.

Legal Aid NSW has also backed calls by consumer rights groups for improved compliance with responsible lending obligations and tougher consequences for misconduct in the financial services sector.

Legal Aid NSW CEO Brendan Thomas said that poor conduct by banks and other lenders had a disproportionate impact on the most vulnerable in our community.

“Too often, when brokers and bankers do the wrong thing, it's ordinary families who face the consequences,” Mr Thomas said.

“We see people through our doors every day who have been devastated by debt and are trying to pick up the pieces. The financial services industry can do better.”

In its submission, Legal Aid NSW has pointed to a number of areas of concern and possible reform, including a ‘best interests’ test for brokers that could be enshrined in law.

“The community rightly expects that where a broker is acting on behalf of a customer, the broker will act in the customer’s best interests. A best interests test is a straightforward move that would help safeguard consumers’ rights,” Mr Thomas said.

Other issues highlighted by Legal Aid NSW in its submission are that:

  • Remuneration policies that reward brokers and bank employees for the volume and size of loans sold lead to breaches of responsible lending obligations and other poor outcomes for consumers
  • Brokers, banks and their employees are not deterred from engaging in misconduct due to the lack of consequences when misconduct is identified
  • Access to free or affordable legal assistance and financial counselling is critical in ensuring that consumers are able to protect and enforce their rights
  • Where a consumer is signed up to an unsuitable bank loan through a broker, it can be difficult for the consumer to seek redress – Legal Aid NSW casework experience suggests that banks and brokers will often point the finger at one another

The full submission is available online.

Media Contact: Sophie Tarr (02) 9213 5208 or 0419 212 334