Banking royal commission interrogates Aussie Home Loans over handling of fraudulent brokers
Updated
Aussie Home Loans has come under fire at the banking royal commission for how it deals with its mortgage brokers who committed fraud.
Commissioner Kenneth Hayne was told that Aussie's system of detecting misconduct was deficient as it does not have the resources.
Aussie's people and culture manager Lynda Harris admitted that the company relied on lenders like Westpac, Suncorp and Bankwest to point out which of its brokers were fraudulent.
"So Aussie's processes again didn't prevent this misconduct from occurring, nor did they detect the misconduct when it had occurred?" Rowena Orr QC, counsel assisting the commission asked Ms Harris.
"I think that's absolutely true, yes," she replied.
More worried about commissions
Back in 2013, Bankwest decided to stop paying trailing commissions in relation to home loans submitted by former Aussie broker Shiv Sahay.
Rather than inform the affected customers, Ms Harris confirmed to the commission that Aussie wrote back to challenge Bankwest's decision.
A broker's trailing commission lasts for the entire duration of the customer's home loan, and the loss of Mr Sahay's commission would cost Aussie $2,000 per month.
The commission heard from Commonwealth Bank yesterday this created a conflict of interest, as the brokers were incentivised to sign customers up for longer-term, higher-interest loans which were not in the customers' best interests.
Mr Sahay's loan portfolio was valuable to Aussie as he brought in 259 customer loans worth $70 million, as at October 2013.
He pleaded guilty to three fraud-related charges brought by corporate regulator ASIC back in 2015, and was sentenced to 350 hours of community service.
Suncorp also learned about Mr Sahay's fraudulent conduct, but took a different approach to Bankwest.
It decided to keep paying Aussie the trailing commission for loans Mr Sahay brokered.
Customers in the dark
The commission began questioning Ms Harris yesterday afternoon about how Aussie initially kept customers in the dark about Mr Sahay's conduct.
After terminating Mr Sahay's employment in 2013, Aussie kept this under wraps from its customers.
One of his former customers received a phone call from Aussie's owner, Commonwealth Bank, drawing to her attention a $14,000 inconsistency in her loan documents.
The customer was even threatened by the CBA employee about being "possibly jailed" over the incorrect information, which was supplied by Mr Sahay.
However, Ms Harris was unable to tell the commission whether customers would now be notified if new instances of broker misconduct arose.
More to come.
Topics: business-economics-and-finance, company-news, banking, consumer-finance, regulation, australia
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