9News: CommBank Charges

Peter Overton, Nine News Sydney: The Commonwealth Bank has pleaded guilty to 87 criminal charges of mis-selling life insurance products, and has agreed to repay customers $12 million.

Nine’s finance editor Ross Greenwood joins me from Pyrmont. Ross, CommBank is facing fines of more than $1 million?

Ross Greenwood: Yeah, it certainly is Pete, and indeed these actions relate to the bank back in 2014, cold-calling customers to buy life insurance.

The banks admits that those calls were illegal, in breach of anti-hawking legislation.

Right now, the banks faces a maximum fine of $1.8 million, plus also says it will repay some 30,000 customers $12 million in a separate but related action.

Anna Bligh, CEO Australian Banking Association: Penalties obviously have an effect, but ultimately its reputation that is going to be most important

Greenwood: But these illegal sales tactics, Peter, are not the only phone calls that get people into trouble.

Its the call you dread if you owe money – the debt collector on the line.

Bligh: Penalties obviously have an effect, but ultimately its reputation that is going to be most important

Greenwood: Banks sell your bad debt to collection agencies who chase you for the money, sometimes into bankruptcy.

But horror stories, including in the banking royal commission, have prompted a rethink.

Bligh: Banks accept that when they sell the debt to a debt collector, that doesn’t extinguish their responsibility for their customer.

Greenwood: Today banks agreed to series of measures, that you must be proactively contacted before your debt is sold.

That a debt can’t be sold if it’s in dispute and you can’t be sent bankrupt without a bank review.

Bligh: These new rules means that banks will have to take much greater care with vulnerable customers before they sell their debt.

Gerard Brody, CEO Consumer Action Law Centre: Debt purchases, if you like, to the dirty work for them. They are the ones engaging in illegal action, they’re the ones taking bankruptcy steps.

Greenwood: Four years ago, big banks sent 148 people bankrupt. Last year, with the Royal Commission in full swing, just 9.

But last year, just one debt collector – Lion Finance – sent 512 bankrupt.

Alan Harries, Australian collectors and Debt Buyers Association: Banks and debt buyers are very keen to speak with consumers to resolve their financial problems.

Greenwood: Right now, you can be sent bankrupt for as little as $5,000.

That’s recommended to be lifted to $50,000. The government said it will review the idea.

Brody: The threshold for bankruptcy is set too low at $5,000

Greenwood: But debt collectors say $50,000 is too high.

Harries: An individual who owes multiple people $5,000, $10,000 wont necessarily know that a person has got a lot of debts.

Ross Greenwood, Nine News