NAB fined $15.5m for pushing ‘reject’ button on customer hardship applications

National Australia Bank (ASX: NAB) has been hit with a $15.5 million penalty by the Federal Court for failing to support customers facing financial distress after incorrectly pushing a “reject” button on them over a five-year period.

The Federal Court ordered the penalty following admissions from NAB and its subsidiary AFSH Nominees that they failed to respond to 345 hardship applications within the 21-day timeframe required by law.

The court heard that, because of this, these customers remained unaware of the outcome of their hardship applications – an area of the National Credit Code that has been a key target for the Australian Securities and Investments Commission (ASIC) in recent years.

“This decision highlights the seriousness of the failures of NAB and AFSH to support their customers experiencing financial hardship,” says ASIC deputy chair Sarah Court.

“These failures likely made an already challenging time in people’s lives far worse.

“This penalty sends an important message to other financial institutions – customers should be at the centre of what you do.”

Australian lenders have been firmly in the sights of ASIC since the corporate regulator last year released its hardship report which found that lenders were not doing enough to support their customers experiencing financial hardship.

In May this year, ASIC filed Federal Court proceedings against Resimac Group (ASX: RMC) over allegations that the company failed in its duty to home loan customers suffering financial distress.

Last year, it also took on both NAB and Westpac Banking Corporation (ASX: WBC), with the action against Westpac yet to be settled.

“The hardship regime exists to help customers who are experiencing financial difficulty, often caused by significant life events such as serious illness, sudden unemployment and domestic violence,” says Court.

“ASIC will not hesitate to take action when banks and lenders fail to comply with their obligations.”

Under section 72 of the National Credit Code, if a consumer notifies their lender that they are or will be unable to meet their credit obligations, lenders must consider varying the customer’s credit contract and advise them of the decision within specified timeframes.

These variations may include payment deferrals, reduced payment arrangements, interest-only periods, term extensions, capitalisation of arrears or interest-rate reductions.

The Federal Court was told that NAB failed to respond to 345 customers within the time required by the credit legislation, and that it did not respond to those customers until after ASIC began its proceedings against the bank.

ASIC says the failure arose from NAB staff incorrectly using a “reject” button in its system, meaning that the customer did not receive any communication from NAB or AFSH in response to their hardship application.

In handing down her decision, Justice Neskovcin found that the provisions of the National Credit Code breached by NAB and AFSH provide “an important formal mechanism to protect consumers who may be experiencing hardship”.

She also found that impacts to customers “may have been avoided if NAB had provided the affected NAB customers and AFSH customers with the required notices in response to their hardship notices within the prescribed timeframes”.

“The total number of admitted contraventions of s 72(4) is high, indicating the significant scope – and thereby the seriousness – of the contravening conduct,” said Justice Neskovcin.

In the wake of the penalty ruling, NAB and AFSH have also been ordered to publish an adverse publicity notice on their respective websites and to provide a copy of the notice to each customer affected by the conduct.

NAB and AFSH have agreed to pay ASIC’s costs.

In response to the court’s decision, NAB has contacted consumer stakeholders to acknowledge its shortcomings and inform them of the measures it has taken to better adhere to its hardship obligations required by law.

“Our customers deserved better from us, particularly during their most challenging financial moments,” says Jocelyn Turner, NAB executive of customer services.

“We have taken our response extremely seriously and have been working alongside ASIC to improve our approach to helping customers experiencing financial difficulty. While we have made progress, there is still work ahead.”

Among the measures introduced by the banking group is the establishment of NAB Care, a team that provides personalised support to customers with specific needs, including those facing financial abuse, unemployment challenges and repeat scams.

NAB has also hired 70 additional staff to support customers in financial hardship, while also increasing the hardship options available to customers.

“Frontline colleagues have now completed comprehensive training to recognise financial hardship indicators and support customers,” Turner says.

“As a result of these actions, more customers are receiving hardship support through NAB.

“While this reflects the unfortunate reality that many Australians continue to face financial challenges, the increasing referral rate also means more customers are receiving help. Importantly, we are helping them in the early stages enabling them to recover more quickly.”