The Federal Court ordered the bank to pay the penalty after it pleaded guilty to criminal charges of making false and misleading representations to customers.

It was also found to have failed to properly provide written notices to home loan borrowers ahead of their repayments changing.

The charges relate to a near-two-year period from 2016 and were brought by the corporate regulator, the Australian Securities and Investments Commission (ASIC).

The court found ME failed to post letters to some customers letting them know that their interest rate and minimum repayments were changing after their fixed rate or interest only period ended from December 2016 to February 2018.

Typically, when a fixed rate or interest only period expires a home loan customer will pay a base or ‘roll-on’ interest rate.

That rate is often different to their previous rate and the variable rates otherwise offered by a lender. 

A lender must, by law, tell a borrower if their repayments are going to change at least 20 days out from the change occurring.

No borrower lost money directly due to the mistake.

However, the court noted they may have missed out on the chance to query, negotiate, or refinance their home loan before changes to their mortgage were implemented. 

The issue was first noticed after a staff member, who was also a ME Bank home loan holder, noticed she hadn’t received a letter despite knowing her fixed rate period was ending and her rate was changing.

ME Bank was also found to have given home loan customers incorrect information regarding their minimum repayments following a fixed rate or interest only repayment.

From May 2018 to September 2018, the bank told customers that their minimum repayments were less than they were in actuality, leading some to incur missed payment fees.

It sent a total of 589 letters to home loan customers detailing the incorrect information and charged a total of more than $3,850 of missed payment fees – all of which were refunded. 

The mistake was a result of errors in the bank’s computer system.

The issues that led to these errors had previously been recognised in an internal audit, which could have made it hard for the bank to plead innocence, Justice Robert Bromwich wrote in his ruling. 

He noted that, when technical systems are used, “very high levels of diligence are required”. 

While the impacts of the error were relatively minor, such lack of care and diligence from ME Bank could have resulted in significant financial harm, Justice Bromwich wrote.

“Banks are expected to properly notify and update customers who are entitled under the law to receive accurate information about changes to their loans,” ASIC executive director for enforcement and compliance Tim Mullaly said.

“Where banks fail to meet these requirements, they can face criminal convictions.”

ME Bank was found to have breached both the ASIC Act and the National Credit Code in its failures, commanding penalties of $750,000 and $70,000 respectively.

The offences occurred more than two years before ME was acquired by Bank of Queensland (BOQ).

BOQ acquired the super fund-founded challenger bank for more than $1.3 billion in 2021.

The Queensland giant acknowledged the Federal Court’s findings against ME Bank.

It said the issues occurred before it owned the bank and the fines were provisioned for as part of its purchase:

“ME Bank apologised to and remediated all affected customers in 2019,” - BOQ Group

It’s not the first time ME Bank has drawn the ire of regulators. 

In 2020 the bank sparked outrage from customers when some were identified as being at risk of falling behind on their mortgage and having their redraw funds absorbed to cover the shortfall.

Again, this was prior to BOQ acquiring the bank.

Image by wayhomestudio on Freepik.

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