NAB to ditch controversial home loan spotters' fees
National Australia Bank will ditch its controversial "introducer" home loan program in an effort to clean up its reputation and practices in the wake of the royal commission.
The move will place pressure on the other banks to follow NAB in putting an end to the practice of paying members of the public a commission to recommend new mortgage customers.
Commissioner Kenneth Hayne estimated NAB paid out $100 million in commissions between 2013 to 2016 to an array of people from gym instructors to members of local sporting clubs to in effect act as spotters of would-be borrowers.
At that time, NAB had about 8000 introducers on its books, who were paid about 0.4 per cent commission on the value of the loan.
Around $24 billion of loans were made during that three-year period.
Following a tip from a whistleblower, NAB ultimately sacked a number of people engaged in what the commission heard included faked customer signatures on loan applications and the use of fake documents, including pay slips, as well as the provision of unsuitable loans to customers.
Over the past 18 months, NAB had scaled back the program, with 2000 introducers now on its books.
One of the surprises of the commission's final report was that despite Hayne's strong criticism of the introducer program and their history of abuse, he did not recommend banning these third-party loan practices.
"As both the NAB introducer home loans and the Aussie Home Loans broker misconduct case studies showed, payments by banks to intermediaries have induced some to engage in other forms of dishonest conduct," Hayne said in his final report.
NAB's acting chief executive and chairman-elect, Phil Chronican, said on Monday he recognised the introducer loans were open to potential abuse.
"In the cold hard light of post royal commission thinking ... why did we do this?" he asks. He says there were "weak controls" and that skewed incentives drove poor behaviour, adding that it was "embarrassing" for this to have come out during the royal commission.
As a percentage of the current loans on NAB's books, these introducer loans accounted for low single digits, but Chronican says NAB "will have to do other things to make up that flow".
“We want customers to have the confidence to come to NAB because of the products and services we
provide – not because a third party received a payment to recommend us,” he says.
“Like other businesses, we will still welcome referrals and will continue to build strong relationships with business and community partners. However, there will be no ‘introducer’ payments made."
Hayne further noted in his final report that, "introducers must only act within the confines of their prescribed role. Entities must have systems in place to ensure that introducers do not exceed this role. And entities should not regard the role of the introducer as modifying their own responsible lending obligations. If introducers and entities behave in this way, introducer programs are not incompatible with responsible lending obligations".
Chronican says many grass roots sporting clubs had used the introducer program as an important fund-raising exercise. Thus NAB would provide equivalent sponsorship to those clubs affected by the change.
Chronican will appear before the House of Representatives Standing Committee on Economics on Wednesday.