Big scary numbers to scare the MPs
Michael Reddell writes:
When our kids were little one of the books we often read them was “Bears in the Night” in which the young bears, hearing a noise outside, sneak out of the house at night, climb Spook Hill and then, terrified by the sudden appearance of an owl – not the most threatening of birds – whose call they’d heard, rush back to the comfort and security of home and bed.
It came to mind when reading some of the arguments being advanced by government officials and banks over the Credit Contracts and Consumer Finance Amendment Bill currently making its way through the Finance and Expenditure Select Committee.
The key controversial bit of the bill is the proposal to legislate retrospectively to close down class action suits currently before the courts against ANZ and ASB in respect of flaws in loan variation procedures etc that occurred between 2015 and 2019.
My position is retrospective legislation is wrong, especially to explicitly interfere with a case that has been before the courts for almost six years. No problem with changing the law to prevent or change future law suits, but definitely not to change the rules for a legal action already underway.
Retrospective legislation is, almost without exception, an odious concept. Perhaps one might make an exception where, say, there was a clear typo in the legislation, giving a quite different meaning to the words of the legislation than Parliament had clearly intended. That wasn’t the case here. Rather, right or wrongly, Parliament changed its mind in 2019 about what the law should be going forward. Now the government – egged on by the banks – wants to make it as if a consciously and deliberately chosen law never was.
I agree.
What is puzzling is why the government would propose to amend the law retrospectively to help out large and highly profitable foreign banks. And in so doing to bypass what is apparently usually the practice when (as happens on rare occasions) retrospective legislation is passed, when cases already before the courts are (apparently) protected.
I hadn’t paid an awful lot of attention to the whole issue until two or three weeks ago when big scary numbers generated by the Reserve Bank were reported (eg here) and thus entered the public debate under headlines (not, to be clear, sourced to the Reserve Bank) about threats to the financial system unless this retrospective law was passed. $12.9 billion (the maximum estimate reported) sounded like a lot of money
It is a big number, and a nonsense number. The current legal action has had a $300 million settlement offer, so you could simply change the law for future legal actions, and cap the exposure at $300 million.
One of those KCs – James Every-Palmer – actually told FEC (at about 24 minutes in) that the sums being sought in the cases against the ANZ and ASB were “as I understand it, hundreds of millions of dollars” (before then handwaving to tie this to a system-wide $12.9 billion dollars). ANZ and ASB together make up the best part of half the banking system, so if the Bankers’ Association understands the claims against them to be “hundreds of millions” then even if that represented $1 billion in total, it is all but impossible to see how the rest of the system could be exposed to $12 billion of claims.
Yet it is this ridiculous number that has convinced Government Ministers that they must push through a retrospective law change.
You can understand why the ANZ and ASB and their shareholders would prefer not to pay such a sum, and would (a) fight it in court, and b), if they could, lobby for a retrospective law change. But it simply isn’t a financial stability issue. It is worth remembering that 15 years ago a big tax case went against the banks, costing them $2.2 billion in an economy then about half the size (nominal GDP) of today’s (and in the midst of a severe recession). Banks affected emerged just fine.
Lobbying for a law change is cheaper than complying with the consequences of not following the law!
Business Journalist Jenny Ruth also writes:
I’m starting to think New Zealand’s banks must be sitting on mountains of undisclosed errors and emissions, all of them committed within a specific four-and-a-half year period.
How else to understand the hysteria and wildly improbable claims in their submissions to parliament’s finance and expenditure committee (FEC)?
Chicken Little and the boy who cried wolf have nothing on them.
I do hope the politicians sitting on the FEC have their bullshit detectors finely tuned.
Nice calling out.
In my previous post on this issue, some commenters said that consumers weren’t really “harmed” by the banks’ disclosure failures, so requiring full refunds is unfair. This misses the point of consumer protection laws.
Take an analogy – if you get a speeding ticket, you can’t argue your way out of it by saying “but I didn’t crash into anyone, so no harm done.” If you broke the law, you pay the fine. That’s how deterrence works.
From a consumer protection perspective, banks are dealing with other people’s money and making billions in profits from it (which I support – you want profitable banks). But we expect that they follow basic disclosure rules that help customers understand what they’re signing up for. These rules exist because there’s a massive power imbalance between banks and their customers.
Consumer protection laws work because they create real consequences. Take away those consequences retroactively, and you’re basically telling every bank in the country that compliance is optional – as long as you can afford the political lobbying afterwards.