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ASIC blasts ME Bank over ‘conscious decision’ to blindside customers

At the heart of the problem was a defective banking product on a legacy computer system that enabled customers to withdraw cash from mortgage accounts at levels that would put them in arrears.

ME Bank chief executive Jamie McPhee told the committee the bank deliberately did not inform customers of the planned changes as it feared this would cause a rush on withdrawals.

ME Bank chief executive Jamie McPhee.

ME Bank chief executive Jamie McPhee.Credit:Jesse Marlow

“There was no communication to those customers prior to those redraws being adjusted,” Mr McPhee said. “It was a conscious decision made and we absolutely acknowledge we got that wrong.”

ASIC was alerted to the problem in 2013 when ME Bank reported an error with a legacy banking product that enabled 416 customers to fall behind on mortgage repayments as a result of the over-extended redraw facility. A further 6554 customers had been identified as being at risk of falling into arrears.

ASIC recommended the bank contact customers already in arrears by phone and the others via letter. This plan was enacted and the regulator received no complaints.

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The issue resurfaced in 2015 as ME Bank continued to migrate digital operations to T24, a new core banking platform. This time, around 21,000 customers were affected and ME Bank did not inform ASIC until four years later in December 2019.

ASIC encouraged ME Bank to adopt the same strategy as in 2013, but this advice was ignored and the redraw change was rushed through.

“ASIC does have concerns about how this matter has been handled,” Mr Hughes said. “It was ASIC’s expectation that ME Bank would communicate with their customers in a clear and transparent manner before making any adjustments to redraw facilities.

“This should have occurred in any normal setting, but in this instance there should have been heightened awareness and sensitivity to explain to customers what was happening to their account balances and why, given the strained economic environment impacting households.

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“This has been a disappointing experience for ME Bank and has had an avoidable impact on customer confidence.”

The committee hearing was called after a leaked letter revealed ASIC asked ME Bank to correct the record to reflect its ongoing engagement with the lender over the issue. Mr McPhee previously stated ASIC was satisfied after ME Bank self-reported the problem in December when, in fact, there were multiple engagements and requests for clarification from ASIC over the bank’s communication strategy.

“This was not a proactive engagement with the regulator, it was a reactive response,” Mr Hughes said.

Labor MP Andrew Leigh asked if ME Bank had breached the law, to which Mr Hughes replied: “I am not in a position to answer that question, Dr Leigh, because our inquiries are ongoing.”

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A ME Bank spokesman said no directors or executives would be stood down over the matter. Committee chair and Liberal MP Tim Wilson said on Monday it was questionable as to whether Mr McPhee’s position was tenable.

“I find it utterly mystifying how ME Bank consciously decided to keep customers in the dark when removing redraw facilities … and how the shareholders and board are consciously deciding to side with the bank over customers,” Mr Wilson said.

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