A 150,000-Customer Banking Class Action: What You Need to Know

Two of New Zealand's largest banks, ANZ and ASB, are embroiled in a high-stakes class action lawsuit that could affect over 150,000 customers. The legal battle has been ongoing for nearly four years, and it has now drawn the attention of lawmakers, who are considering a major change to the law that could significantly impact the outcome of the case.

What is the Class Action About?

The class action stems from alleged breaches of the Credit Contracts and Consumer Finance Act (CCCFA) by both banks between 2015 and 2019. The law requires lenders to provide accurate information to borrowers, and if they fail to do so, they must repay all interest and fees charged during the period of non-compliance.

According to the claim, ANZ had a coding error in its system between May 2015 and May 2016 that led to incorrect loan variation letters being sent to customers. This meant that customers were undercharged for the interest they should have been paying. Meanwhile, ASB allegedly failed to provide appropriate variation disclosure when customers requested changes to their repayment terms—whether by phone, in person, or through other means.

If the banks lose the case, affected customers could be reimbursed a combined total of hundreds of millions of dollars. Importantly, customers are added to the class action on an "opt out" basis, meaning all customers determined by the court to be affected will be represented unless they choose not to be.

Have the Banks Already Made Amends?

Both banks have already compensated some affected customers after the breaches were reported to the Commerce Commission. ANZ initially paid out about $6 million, and after an investigation, the bank admitted to a breach and agreed to pay an additional $29.4 million. ASB, on the other hand, agreed to pay just over $8 million.

What is the Law Change?

A proposed amendment to the CCCFA, currently before a select committee, would allow courts to determine what compensation is "just and equitable" rather than applying a blanket penalty for disclosure breaches between 2015 and 2019. This change would apply retroactively, even to breaches that occurred before 2019 if they had not already been addressed in court.

Lawyers representing the claimants argue that this change could set a dangerous precedent and introduce uncertainty into the legal process. It could also make the case more costly and time-consuming, potentially deterring future litigation funders from supporting similar claims.

What Do the Banks Say?

According to Roger Beaumont, the CEO of the New Zealand Banking Association, the proposed law change is necessary to prevent disproportionate penalties for minor mistakes. He argues that the current legal framework could lead to a potential $12.9 billion risk to the financial system, based on Reserve Bank modeling.

Beaumont also noted that the change would benefit smaller lenders who might not be able to afford the legal costs of a full-scale class action. However, critics argue that the change could weaken consumer protection laws and reduce the incentive for banks to maintain strong compliance systems.

What Settlement Offers Have Been Made?

The claimants have offered to settle the case for more than $300 million. However, both ANZ and ASB have rejected the offer, calling it a "stunt". The offer included a cap on liability based on either 68 percent of what customers paid in borrowing costs during the breach period or a small percentage of bank profits.

ANZ's offer was based on 3.5 percent of its profits from FY16 through FY19, while ASB's offer was 5 percent of its profits during the same period.

What's Next?

The proposed law change is still under consideration by the select committee, and its outcome could significantly influence the case. If the change is approved, it may reduce the potential financial impact of a ruling in favor of the claimants, potentially making it less attractive for litigation funders to continue supporting the case.

As the situation unfolds, affected customers will be watching closely, hoping for a resolution that ensures fair treatment and accountability from the banks involved.