14-May-2020 • Corporate
Today our CEO Jamie McPhee appeared before the Standing Committee on Economics via video link and made the following opening remarks regarding recent home loan redraw adjustments for some customers:
Thank you for inviting me to appear on behalf of ME Bank to answer questions about the Bank and its recent actions in relation to its home loan redraw facility. I have prepared a brief opening statement that with your permission I would like to read.
I would like to start by apologising for the upset we have caused to some of our customers in relation to adjusting their redraw facility. For a bank that prides itself on its close relationship with its customers, this was particularly disappointing.
We approached this with the right intention and in the interests of our customers, but we got the timing and the communications wrong. We should have done better. We are deeply sorry that we upset our customers.
Before I address the redraw adjustment, and the subsequent steps we have taken to fix this mistake, I would like to say a few words about ME Bank.
ME was established with a core purpose of ‘helping all Australians get ahead.’ To do this we aim to have simple and fair products and to deliver them in a way that is efficient and effective, thus enabling them to be competitively priced.
We have always prided ourselves on having a customer service culture where customers get to speak to a real person based here in Australia. All our customer training is about making sure we meet our customers’ needs. We do not measure ‘products per customer’ as that is not what we are about.
Since inception, ME has written approximately 430,000 home loans, helping Australians attain their dream of owning their own home. Our growth has been customer-led. When we were established back in 1994, we had zero customers. Over the last five years we have grown our customers by over 50% and we now have just over 542,000 customers. Our assets have grown to almost $30bn, with 99% of our lending related to home loans.
Over the years we have enjoyed a very low rate of customers in arrears and, we believe, we have enjoyed a good relationship with our home loan customers.
Because our business is predominantly home loans – about giving our customers the opportunity to own their own home, we constantly monitor customer repayments, to keep customers in their homes.
If a customer does get into financial difficulty, our approach has been to proactively reach out to have a conversation with them to see how we can help. This may include pausing home loan repayments or extending the length of the loan term, similar to the Support Package we have put in place for any customers affected by the impact of COVID-19.
It was in this spirit and through this lens that we made the decision on the adjustment of redraw limits.
As part of preparing to migrate these home loans to our new platform, we identified the redraw facility of these loans could lead to some customers falling behind their original repayment schedules if those customers fully drew down on their loans.
This means some customers could have been at risk of not meeting their repayment commitments, potentially leaving them open to:
- paying additional interest on their home loan;
- being at risk of not meeting their scheduled repayments; or
- having a home loan for longer than was scheduled.
Consequently, ME adjusted the redraw facility to ensure those customers couldn’t inadvertently withdraw funds above their original repayment schedule. We believed this was in the interests of our customers.
This action applied to 17% of our home loan customers, constituting 4% of our customers overall.
It is important to add that, after we made this adjustment, customers could still redraw money but capped at their original repayment schedule.
But, let me reiterate. While our intent was right our execution was wrong.
We have upset our customers. We should have done better and for that we are very sorry.
But when we got customer feedback we moved quickly to ‘right the wrong’.
- We went about this by telling customers that we would change back their redraw limits.
- We took out full page advertisements in all the daily newspapers saying we were sorry, accepting responsibility and advising customers that we would change back their redraw limits, if that’s what they wanted.
- We established a dedicated hotline for customers to call and we set up a dedicated online request mechanism, to allow customers to easily request to have their redraw limit changed back.
- We put on extra staff and extended the hotline hours of operation.
While our work continues, for the information of the committee the results to date have been:
- 1,795 customers, or approximately 8% of those customers who had their redraw limits adjusted, have had their previous limit reinstated in part or in full.
- 472 customers have called the hotline; with an average wait time of under one minute.
- 100% of those queries have been resolved.
- The concern and upset expressed on social media has abated.
Along the way, there has been a lot of commentary, some of which contained material inaccuracies which I would like to correct. It is important that the Committee be aware of this.
At no point did the bank ever ‘remove funds from customer accounts’ or ‘transfer’ any customer funds. I would like to stress: no funds were removed or transferred.
For the sake of clarity, I would like to describe what a redraw facility is, and what an offset account is, as I think this is at the heart of this misconception.
A redraw facility is not the same as an offset account.
An offset account is a completely separate account that is “linked” to a home loan, and the interest on the funds in that account is used to “offset” interest on the home loan. Customers are able to transfer money in and out of an offset account freely.
A redraw facility is not a separate account, it is part of the home loan itself. Accessing funds from the redraw facility effectively adjusts the customer’s outstanding loan balance.
ME Bank offers both products, but these adjustments were made only to the redraw facilities of our legacy home loans. We did not transfer or remove customer monies from their accounts. What happened with the change to the redraw facility was that these customers were restricted from increasing their level of debt to above their original repayment schedule. In other words, our customers could still redraw money, but capped at their original repayment schedules.
I would like to emphasise that this was not a decision made for financial reasons, or for liquidity or capital reasons. Nor did it contravene the National Credit Code or the Banking Code of Practice.
I also note that other banks and financial institutions have also altered this particular feature in a similar way. Where we fell down was not communicating this change in advance. It won’t happen again.
Nor was the adjustment made for liquidity reasons. ME is in a strong financial position and our liquidity and capital ratios are well above regulatory requirements.
Finally, I would like to address speculation that this redraw adjustment was somehow linked to the fact that we are owned by super funds, and that super funds faced the prospect of members withdrawing funds due to the changes introduced because of COVID-19.
This is not correct. We have never lent money to our shareholders.
This leads me to say a few words about our governance structure and our relationship with industry super funds. ME is owned by 26 superannuation funds with no one dominant shareholder. Our largest shareholder has approximately 20.4% and the smallest is under 1%. While our shareholders are superannuation funds, ME Bank is run independently of them with an independent Board. Our Board comprises of non-executive directors with experience in law, banking, finance and the digital sectors.
We are an unlisted public company, governed by the Corporations Act and regulated by APRA. We report to our shareholders twice a year and present our results to them at that time.
ME’s profits have been retained for future growth rather than paid out as dividend income back to the shareholders. The relationship is completely at arm’s length and ME Bank does not provide financial support to our shareholders.
In summary, we acknowledge that we upset our customers, some of whom had been with us for many years, and for that we are deeply sorry. We acknowledge we made a mistake – we could have and should have done much better. It is very important to us that we keep our customers happy and clearly in this instance we fell well short of that.
Thank you, I am happy to take your questions.
For media inquiries, please contact:
Matthew Read
General Manager Communications
0432 130 338
matthew.read@mebank.com.au
Jackson Stiles
Public Relations Manager
0499 444 107
jackson.stiles@mebank.com.au