Fakes, Fears & Feelings

Dodgy Docs Takedown The Banks

There was a time if you wanted to rob a bank you actually had to enter the bank, make threatening noises, scare the hell out of everybody, grab the cash and flee before the cops arrived. Now, it appears all you need is an email and some dodgy documents.

It’s a conclusion easily reached after recent news that a syndicate of crooks allegedly fleeced the big banks and others of up to $600 million by inflating the value of properties they were “buying” in some of Tinsel Town’s richest suburbs.

Allegedly, the trick was to apply for loans on property values up to 50 per cent higher than comparable properties. If the loan was approved, a separate deed of rebate allegedly saw some of the money returned to the buyer. Two people had previously been charged over alleged fraudulent loans totalling more than $18 million, giving you some idea of the scale of the operation.

If all this is proved, huge questions arise. Where the hell were the banks’ defences against this type of fraud? Banks don’t normally lend money for a property without some form of valuation. Sometimes they nominate a valuer from their panel; sometimes they use a desktop valuation based on recent comparable sales. Were those checks done? Who vetted them? It’s too early to speculate, but the fact that the alleged fraud reached the Big Four and several other lenders suggests this wasn’t simply a case of one bank having a bad day.

A Panic of Pundits

Media pundits love a fearful headline and currently, armed with a spreadsheet and no sense of proportion, the latter-day Chicken Littles are digging in. They have excitedly descended on our homes with screaming headlines like the one claiming we are facing a $1.3 trillion property “wipeout”.

Before you roll into the foetal position, let’s add some perspective. According to the feller from AMP who came up with this figure, it represents a fall in the value of Australian residential stock of around 10 per cent. That’s the value of the housing stock, not $1.3 trillion disappearing from people’s bank accounts. It may also surprise you that a 10 per cent fall would take some markets back towards 2024 levels. Hardly the Dark Ages.

It’s also worth remembering that there is no single property market. Prices have recently increased a little in Perth, Adelaide and Queensland while they have fallen in NSW, ACT and Victoria. Don’t get me wrong. House prices are on a downward trajectory and will probably remain so if the Reserve Bank increases the cash rate as expected.

That’s probably not great news for recent buyers, who may see their equity take a hit. But the sky is not falling in. On the other side of the front gate is an army of prospective buyers who have spent years watching the property market disappear over the horizon and may regard falling prices as a brand-new day.

When Feelings Don’t Matter

Here’s another example of a headline and some numbers that don’t quite tell us the full story.

Apparently, all the talk about property prices, the economy, the cost of fuel and the likely interest rate rise, among other things, has left us feeling miserable. Confirmation of this comes from the Westpac-Melbourne Institute’s Consumer Sentiment Index, which reveals that consumer confidence has fallen 5.2 per cent to 84.4.

The magic number is 100. Any number above that is a sign of optimism. Unfortunately, the index has only be above 100 three times since 2022 — twice in early 2022 and briefly again last November. Australians have technically been a bunch of sad sacks for most of the past five years.

So, what’s the point of the survey other than providing a steady supply of headlines? The Melbourne Institute believes that sentiment data can improve forecasts of GDP and consumption. On the other hand, the Reserve Bank says there is limited evidence that consumer sentiment is an independent driver of household consumption. In other words, how people feel is not necessarily how they will act.

So maybe the point is simply the headline. Sometimes the simplest explanation is the best.

Cash and Gone

The Federal Court has slapped Venture 5 Group Pty Ltd (trading as CashnGo) $3.5 million for including unfair contract terms in more than 47,000 short-term loans typically used by consumers who needed quick cash and couldn’t access mainstream credit.

After a customer missed a repayment, CashnGo’s contract terms let its automated systems:

Monitor the customer’s bank account balance
Repeatedly attempt withdrawals the moment funds appeared, with no warning about timing, frequency, or amount
Do this without giving customers any way to opt out

The court found this practice could — and sometimes did — leave people with less than $5 in their accounts. Some customers were already in financial difficulty and may have been left without money for food, rent, or other essentials.

CashnGo also failed to send legally required default notices to more than 53,000 consumers on over 67,500 occasions and had unfair terms limiting its own liability and requiring customers to indemnify it.

The penalty was a victory for ASIC which brought the case and has been targeting misconduct by companies likely to cause significant harm to vulnerable customers.

The $249 Million Record

The champagne bottles must have popped when law firm Slater and Gordon learned that the Commonwealth Bank and entities associated with Colonial First State had agreed, in principle, to settle a long-running class action for a whopping $249 million.

It is the largest class action settlement ever achieved by the firm. The agreement, which is yet to be approved by the Federal Court, was reached without the respondents admitting liability.

The lawyers alleged that Colonial First State entities placed members’ money with their parent company, CBA, at interest rates below those available elsewhere. The class action sought to recover the interest members allegedly missed out on.

The settlement is a good outcome for eligible members. It’s not so comforting that it took a class action to get it.

Not So Sweet Anymore

Sweeteners have always been used by banks to sell credit cards – frequent flyer points, insurance, cashback, discounts and, in the old days, apparently even a toaster. Well, as the saying goes: the banks giveth and the banks taketh away.

From October, the sugar hits are being scaled back. New rules will remove card surcharges and reduce interchange fees squeezing some of the revenue that helps fund all those lovely little perks.

So, some banks are scrapping some of the rewards, reducing the value of others and, in some cases, hiking the annual fee. Which raises an obvious question: if the rewards aren’t rewarding anymore, do you really need the card?

Certainly, it’s time to start asking questions and shopping around. There is little point paying a hefty annual fee and putting all your expenses on a rewards card if the great prize at the end is a flight to Cunnamulla at 5 a.m. on a Tuesday. No disrespect meant to Cunnamulla.

The Final Word

Who said that life on Money Road was boring? The banks are being robbed, the pundits are panicking and the rest of us are apparently feeling miserable. At least, Cunnamulla can take a joke.