Industry superannuation bank run suicide intensifies

Via Domain:

The prudential regulator has contacted the board of ME Bank to obtain more information about changes to its redraw policy in a bid to determine if an investigation into the lender would fall under its remit.

The Age and The Sydney Morning Herald have been told the Australian Prudential Regulation Authority approached ME Bank on Monday seeking information about its decision to remove access to money in redraw facilities linked to home loans. But the enquires were preliminary and further action is far from certain.

It comes as the trustees and chief executives of major super funds that are shareholders in ME Bank continue to press the lender for answers after it was revealed borrowers had been cut off from personal funds without their consent or knowledge. ME Bank is owned by 26 industry super funds linked to big unions.

APRA should be livid and force a reversal. This is not just a minor infraction. It threatens ME Bank with wider run as consumers conclude that if redraw can be withdrawn what else can ME Bank seize without notice?

Banking Day has more:

Members’ Equity Bank last night denied it might have broken its own contractual terms and conditions by giving late notice to borrowers of controversial changes to mortgage redraw limits.

The bank’s senior executives were last night in lockdown crisis meetings as they tried to push ahead with a move to slash redraw caps on home loans despite a backlash from customers and many of its own shareholders.

However, ME – through a spokesperson – last night apologised to affected customers for the poor manner in which it communicated the changes.

“We communicated poorly to customers in terms of the timing and telling them what we were doing and why,” the spokesperson said in an emailed response to questions from Banking Day.

“That’s something we clearly regret and for which we now apologise.”

…Borrowers affected by the decision told Banking Day on Monday that the notification letters were marked as having been written on 23 April.

If that is correct the bank might be in breach of its own terms and conditions because an argument could be mounted it made no realistic effort to respect the notice requirement that might apply to the redraw change.

The ME spokesperson said the bank had not breached its notification requirements.

…First Super – a fund covering workers in the timber and furniture industries – has called on the bank to review the timing of its decision as angry borrowers went viral on social media with their grievances.

It is believed that some shareholders are concerned that the bank failed to meet community expectations by not notifying customers in advance of the decision taking effect.

Geniuses. Banking is a trust industry. That is it only currency. ME Bank just violated it, regardless of the letter of the law.

They should be forced to reverse the decision and explain it in full lest it undermines the entire bank, not to mention the entire sector.

If that means taking pain in some other way owing to liquidity issues, or whatever other hiccup created the blundering decision, then so be it.

David Llewellyn-Smith
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  1. Does anyone here have a mortgage with ME Bank? If so, can you post Section 11, specifically clause 11.5 of your contract. Horse, door etc etc – read the bloody contract you signed, If you don’t agree with their terms, then you are making a conscious decision by signing that you accept their right to do anything they want and tell you in the newspaper after they have done it…

    • ErmingtonPlumbingMEMBER

      Is that any different to having a mortgage with any other Bank?
      I’m curious because I’m with ME

    • Arrow2MEMBER

      Missing the point J Hu. The contract might allow them to act like complete psychopathic [email protected] but that doesn’t make it a good idea.

      They deserve everything they get for a compete lack of common sense and judgement.

      • At what point does the consumer take responsibility for the contract they signed? If they did not understand it, they should seek assistance or if the clause is truly as open ended as a broker intimated to me, they should switch to a different bank or reconsider their intent to purchase if no one else will take them. Method of announcement was exactly per the contract – basically we will take actions and notify you after the fact in the manner that is consistent with current regulations including through a newspaper placement of the actions.

        Now the idea that this was possibly not the best time to do it begs the question why have an open ended clause in the first place because the only time you need it is when the proverbial is millimetres from the rotating blades. It means there is never a good time to save yourself, which is the implications of these type of desperate actions. They are a bank and if they need to shore up their loan portfolio prior to a placement under the current regime to protect the overall bank from collapsing, well they have to do it. The screaming about the impact to customers should be redirected to a thorough examination of why they felt they had to take these actions at this time. And what relationship did it have to the portfolio of mortgages they securitised after the redraw facilities were touched up. In other words, was this a sign of desperation when they examined the quality of their loan portfolio and realised that minus this action, no one would buy the MBS’s from them and the risk of a major problem would explode…

        • Arrow2MEMBER

          Mate, even they have realised they got the timing, communication and judgement wrong. Hence their grovelling language and apologies.

          The contract might say it’s legally fine but it’s a stupid business move.

          When I was at law school plenty of lecturers could examine a situation and tell you all the legalities. Only a few – the really good ones – could then say “but in the real world you’d actually probably do something different, because X”.

          • Again, the question is why they thought they needed to do this ahead of the release of a set of MBS’s and what is the real state of their loan portfolio. Someone felt the situation was dire enough to act and act quickly, pushing the big red button in the corner with the huge sign saying “Emergency Use Only” and requiring the keys from more than one senior official to authorise the move. The noise over some people who didn’t realise the bank could do this if it needed to obscures the real questions that should be asked regarding the the firms health and the quality of the loan portfolio. It also begs the question: how many borrowers across all the banks and institutions really understand the full extent of the contracts they signed and what clauses the bank can enact in times when the bank is facing difficulties… What if the action taken averted an immediate collapse? A collapse would have even worse outcomes for more customers and the Australian banking system…

        • ArthurMEMBER

          J Hu. Consumers are required to sign sh!t all the time. Think of it as a social contract whereby a common transaction will be assumed to be written in terms fair to both parties, because it is impractical or unlikely that weaker parties will be able to read or fully understand the terms of the contract at time of signing. This is because any contract can easily be written in language so hard to read as to be impossible to understand.
          So, if the contract is a [email protected] thing, it’s more than fair that the other party has comeback

          • Arrow can answer better than me. Both parties who sign a legal document are assumed to have sufficient knowledge to understand all the clauses and supplements in the contract, and in the event that they don’t possess this knowledge, are advised in a PDS (per AFSL requirements) to engage appropriate representation to ensure that they are in full understanding of the conditions in the contract as presented, and by their signing the agreement they agree to these conditions. The loan agreement is about protecting the banks interests and investment in the provision of money to you the lender, they write the contract not you. If you want a fair and equitable contract, write your own loan doc and shop it around to parties with money they could lend to you. Remember, low interest rates fuel an environment where real risk is mispriced, and mortgages in Australia are a commodity where there is price competition. All these banks built their loans books on the assumptions that changes in the cost of finance can be passed onto the borrower (variable rate mortgage), and the material risk of events leading to dramatic house price correction were minimal. The protection of the banks asset (the loan to you) is done through the contract you are presented with. You can negotiate the terms of the contract with your bank depending on your means (ie if you don’t need the loan you are in a much better position than if you do need it). But nothing changes the fact that the contract you enter into is not equitable and its sole job is to protect the banks investment in you.

            I wonder how many people have actually read the Microsoft Office 365 license agreement or the Apple iPhone license agreement.

          • drsmithyMEMBER

            I wonder how many people have actually read the Microsoft Office 365 license agreement or the Apple iPhone license agreement.

            In a sensible world, walls of impenetrable legal obfuscation would be routinely overruled by courts or legislation that requires adherence to reasonable community expectations.

            This, in turn, discourages the use of walls of impenetrable legal obfuscation for profit.

            For commonplace transactions, if an average high school student can’t easily and quickly understand and interpret a contract, it shouldn’t be allowed. That would most certainly covers things like software EULAs.

  2. If that haven’t done anything illegal they shouldn’t be forced to do so. But their reputation is in tatters for the short term anyway. Staggers belief that someone somewhere in the chain of command didn’t question what they were doing in terms of trust and reputational impact.

    • PeachyMEMBER

      That’s right. If the RC taught the banking execs anything, it’s certainly that you shouldn’t burn market share or punters’ goodwill for some lofty, pie-in-the-sky, “responsible lending” fantasy.

      The sensible thing to do is to just shovel the debt out the door as fast as possible. On the infrequent occasion that you both overstep AND get caught, make some placating noises, blame “systems”, grant an interest or repayment holiday.

      That way everybody is happy. And it’s less work, to boot. Oh, and bigger bonuses. Did I mention bigger bonuses?

    • Same. I have a Term deposit maturing with them this month. It won’t be at ME in July.
      I always thought me looked ok as it’s ownership would provide stability.

      But the way they have aggressively tried to build their mortgage book and this decision makes me wonder…

      • Yes it does seem that their whole business model conjures images of a serpent eating it’s own tail.