NZ bank practices 'predatory'


Last updated 05:00 25/08/2012


An Australian consumer rights activist claims New Zealand banks used predatory lending practices to profit from widespread mortgage fraud.

Denise Brailey has sparked calls for a royal commission into the Australian banking sector on the same issue, and hopes to head to New Zealand this year to continue her crusade. Addressing the Australian senate this month, she outlined the systematic abuse of “low-doc” loans during the pre-financial-crisis property boom.

Brailey has documents alleging the asset-rich and income-poor were specifically targeted by lenders in a grab for title deeds, with application forms doctored to push the loans through.

Brailey, the Banking and Finance Consumer Support Association founder, has "no doubt" the fraud occurred on both sides of the Tasman. Four of New Zealand's major banks are Australian-owned.

Of the hundreds of indebted New Zealanders she met on a visit in 2008, many were retirees whose loan applications had been falsified to inflate income details or to say they were self-employed.

Most had no real means to repay the loans, which were often taken out to buy into property investments such as the failed Blue Chip scheme.

“It appears the banking industry believes that the customer should be blamed for purchasing the faulty product [low-doc loans] in the first place,” Brailey said.

Major banks no longer advertise low-doc loans, and consumer law is being amended to strengthen responsible lending practices.

But it was a New Zealand mortgage broker operating locally who originally helped Brailey piece together a key part of the puzzle, she said.

He described bank officers visiting brokers to make sure they were using debt servicing figures on loan forms that would meet lending criteria.

“I was told if you didn't do it that way, you didn't make any money,” Brailey said.

This month a former award-winning broker in Australia admitted to the same fudging of figures. Kate Thompson, now facing fraud charges, said she received big commissions for inflating asset and income details to get loans approved.

"Hook me up to a lie detector test and hook them up," Thompson told ABC News. "I'll lay my evidence on the table. They will fail a lie detector test miserably. They are corrupt. They are protecting each other."

Australian senator John Williams has called for a royal commission, but New Zealand authorities have remained inactive.

Brailey met then-Commerce Minister Lianne Dalziel four years ago. “I can't say categorically to Dalziel that she did nothing, but it didn't go anywhere,” she says.

Lenders have been able to distance themselves legally from often grossly irresponsible lending through a chain of intermediaries.

The loophole was cemented in New Zealand by a landmark case between GE Money and Whangarei pensioners Bruce and Dorothy Bartle, who were lent $630,000 for a Blue Chip investment.

Like many others the Bartles' application form had been altered by a third party in order to secure a loan they had no hope of repaying.

An early victory in the Court of Appeal ruled the contract oppressive, but it was overturned by the Supreme Court, which said it would be wrong to hold GE culpable.

Bankers' Association chief executive Kirk Hope said New Zealand banks were responsible lenders, and had reduced their reliance on the mortgage broker channel.

“It's simply not in banks' interests to lend to people who they know are unlikely to meet their commitments,” he said.

- © Fairfax NZ News