Financial Markets Authority v ANZ Bank New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Muir J
• Judgment Date: 12 February 2021
• Neutral Citation: [2021] NZHC 399
• Court: High Court
• Docket Number: CIV-2020-404-000819
• Date: 12 February 2021

UNDER The Financial Markets Conduct Act 2013

Between

Financial Markets Authority

Plaintiff

and

ANZ Bank New Zealand Limited

Defendant

[2021] NZHC 399

Muir J

CIV-2020-404-000819

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Banking and Finance — assessment of penalties for breaches of the Financial Markets Conduct Act 2013 admitted by the defendant — the breaches related to credit card repayment insurance policies — the defendant had earnt commission on duplicate policies and ineligible customers — misrepresentations made as to additional benefits conferred by duplicate polices and the defendant's entitlement to charge premiums — first penalty case under the Act — principles to be considered when setting a pecuniary penalty

Counsel:

N F Flanagan and A D Luck for the Plaintiff

A Horne and A Payne for the Defendant

JUDGMENT OF Muir J

This judgment was delivered by me on 5 March 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:

Introduction

1 On 4 June 2020 the Financial Markets Authority (“FMA”) filed civil proceedings against ANZ Bank New Zealand Limited (“ANZ”) alleging various breaches of the Financial Markets Conduct Act 2013 (“the Act”).

2 In its Admission of Causes of Action and Facts dated 2 September 2020 ANZ admitted the relevant causes of action.

3 The Court is now asked to impose an appropriate penalty. After extensive and, in my view, responsible discussions, the parties agreed that this should be $280,000, acknowledging, however, that the amount of any pecuniary penalty is ultimately a matter for the Court.

4 I am satisfied that the proposed penalty is appropriate. My reasons follow.

Background

5 The background to this claim may be stated relatively briefly.

6 ANZ issues and manages consumer credit cards in the course of its business.

7 Between 1991 and September 2019 it offered credit card repayment insurance (“CCRI”) policies to customers holding credit cards. CCRI policies are a form of insurance which cover some or all of a customer's outstanding credit card repayments in certain circumstances, for example, in the event of the customer's bankruptcy, redundancy, injury, illness or death.

8 ANZ received a commission for providing information on prospective customers to insurers who would then sell CCRI policies to those customers. Until May 2016, ANZ also sold CCRI policies directly.

9 At all relevant times, ANZ issued monthly credit card statements to its customers. These statements included the customer's outstanding credit card balance and any premiums ANZ represented were owing in respect of the CCRI policies sold to that customer. These premiums were determined as a percentage of the amount owing on the last date of the statement period.

10 Between 2017 and 2018 ANZ identified two problems with its CCRI offerings — duplicate policies and ineligible customers. The issues affected approximately 0.3 per cent of relevant CCRI policyholders. I will address each problem in turn.

Duplicate policies issue

11 From approximately December 1998, ANZ issued some customers already holding an existing CCRI policy with one or more additional policies (“Duplicate Policies”). It did so due to deficiencies in its sales and fulfilment systems and errors in its computer systems. The Duplicate Policies did not provide any additional benefits beyond those conferred by the customers' existing policies.

12 In the period since commencement of the Act (1 April 2014):

• (a) ANZ issued 186 customers with Duplicate Policies;

• (b) ANZ charged a total of $176,769.57 (including premiums, fees and interest) on such policies; and

• (c) ANZ received a total of $20,458.43 in relevant commissions.

13 The issue persisted until 23 August 2019, by which time ANZ had cancelled all of the Duplicate Policies then in force.

Ineligible customers issue

14 Between 1997 and 1 May 2018, customers were not eligible to hold some CCRI policies if they were aged over 65 or 75 years old, depending on the policy (“Ineligible Customers”).

15 During that time, ANZ issued CCRI policies to some customers who exceeded the maximum age of eligibility. ANZ also failed to cancel the CCRI policies held by some customers who exceeded this maximum and it continued to collect premiums on those policies. The CCRI policies conferred no rights or benefits on Ineligible Customers, albeit that none were declined on age eligibility grounds.

16 Again taking the position as from 1 April 2014:

• (a) 121 Ineligible Customers held, or were issued with, CCRI policies;

• (b) ANZ invoiced Ineligible Customers a total of $22,351.19 (including premiums, fees and interest) on such policies; and

• (c) ANZ received a total of $337.42 in relevant commissions.

17 From 1 May 2018, all of ANZ's CCRI policies were available to customers up to 99 years of age.

ANZ's response to the issues

18 ANZ became aware that some customers may have been or were affected by:

• (a) the Duplicate Policy issue, in or around September 2017; and

• (b) the Ineligible Customers issue, in or around May 2018.

19 In April 2018, the FMA and the Reserve Bank of New Zealand (“RBNZ”) launched a joint review into the conduct and culture of 11 New Zealand retail banks including ANZ.

20 Between 3 May 2018 and 21 June 2018, ANZ engaged in correspondence with the FMA and the RBNZ in relation to that review. However, although ANZ had identified both the Duplicate Policy issue and the Ineligible Customers issue by May 2018, it did not disclose those issues to the FMA/RBNZ. This was despite specific requests from those bodies that ANZ provide information on “any work underway to remediate any identified issues where bank conduct has resulted in detrimental outcomes for customers”. The FMA accepts, however, that this was not on account of any wilful decision on ANZ's part to withhold the information from the Regulators but rather as a result of inadequacies in its systems whereby the issue was not appropriately escalated to ANZ's Remediation Governance Forum (“RGF”), which was dealing with the FMA at the time, and the RGF's failure to interrogate adequately all relevant aspects of the bank's operation.

21 By contrast, ANZ did advise the insurer for the majority of its CCRI Policies (Cigna Life Insurance New Zealand Limited) of: 1

• (a) the Duplicate Policy issue on or around 10 May 2018; and

• (b) the Ineligible Customers issue on or around 24 May 2018.

22 ANZ ultimately reported these issues to the FMA on 27 and 28 June 2019 by which time it says it had identified the extent of the problems and was well advanced in its assessment of how they could be appropriately and fairly remediated (a position complicated by the fact that a proportion of those affected carried ongoing debit balances on their credit cards with the result that inappropriately charged premiums themselves attracted interest at credit card rates — I accept that in this context there was likely to be significant complexity in the calculation of relevant compensation).

23 ANZ has since taken steps to contact and reimburse customers affected by these issues. Where customer identification has been possible (approximately 98 per cent of those affected) it has reimbursed all charges paid for duplicate or ineligible CCRI policies, including premiums, fees and interest. In the case of customers who habitually paid the full sum outstanding on their cards on the due date, it has refunded premiums and paid use-of-money interest. In the case of the very small number of customers it has been unable to locate (7 of 307 or approximately 2 per cent) it intends to pay the relevant sums to Inland Revenue as unclaimed monies.

The current application

24 In its claim the FMA alleged various breaches of s 22(d) and/or (h) of the Act in respect of the Duplicate Policies issue, and s 22(a) and/or (h) in respect of the Ineligible Customers issue.

25 Section 22 of the Act provides:

A person must not, in trade, in connection with any dealing in financial products, the supply or possible supply of financial services, or the promotion by any means of the supply or use of financial services, make a false or misleading representation—

(a) that the products or services are of a particular kind, standard, quality, grade, quantity, composition, or value, or have had a particular history; or

(d) that the products or services have any sponsorship, approval, endorsement, performance characteristics, accessories, uses, or benefits; or

(h) concerning the existence, exclusion, or effect of any condition, warranty, guarantee, right, or remedy, including (to avoid doubt) in relation to any guarantee, right, or remedy available under the Consumer Guarantees Act 1993; or …

26 In particular, the FMA alleges that by issuing statements to customers affected by the Duplicate Policy issue, ANZ made false and/or misleading representations that:

• (a) the Duplicate Policies conferred additional benefits beyond those already conferred by the customer's existing CCRI Policy, in breach of s 22(d) of the Act; and

• (b) it was entitled to charge the premiums that appeared on the statements in breach of s 22(h) of the Act.

27 Likewise, the FMA alleges that by issuing statements to those affected by the Ineligible Customers issue ANZ made false and/or misleading representations that:

• (a) the Policy charged for was a valid and enforceable CCRI Policy in respect of the Ineligible Customer, in breach of s 22(a) of the Act; and/or

• (b) it was entitled to charge the premiums that appeared on the statements in breach of s 22(h) of the Act.

28 ANZ admits these breaches. It also accepts:

• (a) that the FMA is entitled to a declaration that ANZ contravened s 22(d) and/or (h) of the Act by issuing statements to customers affected by the Duplicate Policy issue; and

• (b) that...