NAB axes controversial home loan referral program

Sydney Morning Herald March 25, 2019 6.14pm

Clancy Yeates

Real estate agents, lawyers and sports clubs will no longer be able to receive payments from National Australia Bank for helping sell home loans, in a move aimed at rebuilding trust after the bank's reputation took a battering at the royal commission.

Acting chief executive Phil Chronican on Monday announced the axing of NAB's "introducer" scheme, to take effect from October, saying that scrapping the payments was "the right thing to do".

Referral schemes, such as NAB's introducer program, are used by banks as a way of drumming up business. They involve paying a type of spotter's fee to people who refer customers to the bank if they end up taking out a loan.

NAB made nearly $100 million in such payments between 2013 and 2016, offering commissions of 0.4 per cent of loans, including payments to at least one gym owner, the royal commission found.

The commission also revealed some NAB introducers had been involved in a wider alleged bribery ring, in which bankers made loans based on fake documents to "smash" their sales targets.

Following the explosive evidence to the commission, NAB last year said it had tightened the program significantly, restricting who it was open to and slashing its introducers by 6500. The remaining 1200 introducers included people in professions linked to house buying such as lawyers and real estate agents, and weeded out members of the general public, with the exception of some community groups like sports clubs.

Commissioner Kenneth Hayne did not ultimately call for the payments to be scrapped, saying last month introducer arrangements were "not incompatible with responsible lending obligations".

Even so, chairman-elect Mr Chronican signalled the bank was making the change in response to community expectations of banks.

“Through the royal commission, we heard clearly that our actions need to meet the expectations of our customers and the community. We need to be simpler and more transparent to earn trust. We have to put customers first, to be a better bank,” Mr Chronican said.

“We want customers to have the confidence to come to NAB because of the products and services we provide – not because a third party received a payment to recommend us.”

The bank said some sports clubs benefited from the introducer program, and it would offset the impact of its introducer scheme being axed through sponsorship of these clubs.

NAB's key rivals continue to make introducer payments. The lenders defend the programs on the basis they are limited to certain groups, the payment is disclosed to customers, and referrers have no involvement in the actual lending decision.

A Commonwealth Bank spokesman said the bank operated a "small" referral program, and all referrers were thoroughly accredited and selected before they provided the bank with any leads.

Westpac said its program was managed under a "tight framework" that required referrers to come from specific professions and to be accredited by the bank.

An ANZ Bank spokesman said its introducer scheme was limited to "select groups, including fundraisers, sporting clubs, accountants and lawyers".

He said the bank was updating the commission structure and governance framework for the program, in response to a review of retail banking remuneration by former top public servant Stephen Sedgwick.

Choice policy and campaigns adviser Patrick Veyret reiterated the consumer group's opposition to banks paying commissions, including those paid to referrers.

"As we’ve seen across the industry, percentage-based commissions create conflicts of interest, where advisers, such as introducers, are incentivised to recommend larger and less affordable home loans to maximise their own pay cheques," Mr Veyret said.