This for failing to follow loan disclosure rules
Kookmin Bank will refund more than $11 million to borrowers after an investigation by the Commerce Commission found the bank had failed to follow loan disclosure rules.
The major South Korean bank was the latest lender found to have breached loan disclosure rules, with ANZ, ASB, Bank of New Zealand, HSBC, Westpac, and Kiwibank all having had to refund customers for similar breaches.
The settlement agreement Kookmin inked with the Commerce Commission has raised some eyebrows though, as the bank had committed to repay the full “cost of borrowing” to many of the nearly 500 borrowers to whom it failed to provide full loan disclosure documentation, Stuff reported.
ANZ and ASB are both defending a class-action lawsuit claiming the full cost of borrowing on around 150,000 loans where they failed to disclose key information.
While the two banks did refund borrowers under settlement agreements with the Commerce Commission, they hadn’t been required to repay the full cost of borrowing, which included all fees and interest charged to the affected borrowers.
The ANZ/ASB case heads to the Court of Appeal next week to ascertain whether the High Court’s decision to allow the case to go ahead on an “opt-out” basis was correct.
Around 500 people signed up to participate in the ANZ/ASB class-action lawsuit, but the court ruled the case could be taken in the name of all affected borrowers, with the option to opt out for those who did not wish to be included.
The claim is being taken by solicitor Scott Russell (pictured above) who welcomed the Kookmin settlement agreement, Stuff reported.
”That’s very interesting. It seems that potentially our claim is actually having an effect on the market, and what penalties are appropriate,” Russell said.
The Commerce Commission said that by failing to ensure that it provided compliant initial disclosure about its home and personal loans between 2015 and 2021, which the bank had admitted to, Kookmin breached its obligations under the Credit Contracts and Consumer Finance Act.
Under the law, which came into force in 2015, lenders were required to refund all costs of borrowing during the period when they were in breach of the laws designed to ensure borrowers were fully informed about their loans.
Aware of the law’s threat to banks, the lenders had lobbied for it to be changed, and for the change to be retrospective.
In a letter to the Ministry of Business, Innovation and Employment (MBIE) in 2016, the New Zealand Banking Association protested the law was unfair because it meant the banks “must refund costs of borrowing in all situations, even if they’ve corrected non-disclosure or there is no material harm to the borrower.”
In announcing the Kookmin settlement, John Small, commission chair, noted that such failures put consumers at risk of harm, as borrowers could potentially make uninformed borrowing decisions, or not understand their hardship, cancellation and dispute resolution rights under the contract.
Small said lenders are obligated to provide borrowers with key information before they take out loans.
“These obligations are in place to ensure that borrowers can make informed decisions before entering contracts, reducing the risk for financial harm,” he said.
Under the settlement agreement Kookmin inked with the commission, the bank has committed to forking out $11,029,020 in compensation to affected borrowers.
Kookmin’s latest public financial statements revealed that the bank had just under $585 million in loans at the end of December, and that the $11 million refund equates to nearly double its annual operating income.
In the 12 months to the end of December, Kookmin’s interest income from loans was $21.5 million. The bank’s operating income went down to just over $6 million, though, after deducting the interest it paid depositors, and adding the income it got from fees.
“Banks are a key source of borrowing for consumers, with typically large sums of money involved, so it’s vital they abide by the law and are resourced to meet all of their compliance obligations,” Small said.
Unlike other banks whose disclosure failures were self-reported after they came under greater scrutiny from the Financial Markets Authority and RBNZ, Kookmin’s failings were detected by the commission in 2021.
The commission said Kookmin Bank would be reaching out to affected borrowers as part of the settlement and enforceable undertakings, Stuff reported.
