NAB has been fined $15 million and lampooned by a federal judge after its controversial $24 billion referral program blew up

(Photo by Robert Cianflone, Getty Images)(Photo by Robert Cianflone, Getty Images)
  • NAB will pay $15 million after its long-running referral program was found to have repeatedly contravened the Credit Act.
  • For the better part of two decades the bank paid unqualified middlemen commissions for bringing it customers and supplying information on them.
  • It would eventually pay out tens of millions of dollars, if not hundreds, and generate $24 billion in loans.
  • Visit Business Insider Australia’s homepage for more stories.

A large corporate fine hurts, but not nearly as much as having the judge presiding go to town over your offences.

NAB is finding that out the hard way on Monday, after being slapped with a $15 million fine for its controversial ‘introducer’ program, that rewarded any Tom, Dick and Harry for referring it potential customers.

The premise was simple. Funnel the bank customers, and if they took out a loan, NAB would kick the ‘introducer’ a commission.

“There were no uniform processes for selection of the Introducers, no requirement that they have any particular training and no minimum level of due diligence; there was also no relevant formal training for ‘frontline’ bankers, including as to the nature of the information the Introducer could lawfully provide,” Justice Lee summarised in his judgement on Monday.

In other words, the program became a free-for-all, incentivising thousands of “financially interested third parties” to collect information on Australians and then inform on them to NAB.

“What could possibly go wrong?” Lee asked rhetorically.

The good Justice is of course well aware of what went wrong, as everyone from bankers to accountants to real estate agents milled about to get their kickbacks.

It was a win-win. A bunch of money-hungry bottom feeders got their fill, pocketing more than $47 million in 2015 alone. The top four stars, including a gym owner, made nearly $140 million between them.

Meanwhile, NAB managed to generate more than 46,000 loans worth an impressive $24 billion.

“It operated from at least 2000, lasting for around 19 years until it was, to use the NAB’s euphemistic term, ‘retired’,” Lee said.

On the surface, it was a wild success. But underneath, it was open season as some began falsifying everything from payslips to letters of employment to ensure approvals were given and commissions paid.

Of the sample of bad apples caught up in the ASIC investigation, some have been banned from providing financial services for years to come.

In retrospect, it seems obvious that a multimillion dollar honeypot program would attract fraud. Given this one ran with “no minimum level of due diligence”, “no compliance”, and “no consequences”, it now seems obvious that it would eventually run afoul of the law.

But at the time, management came to a slightly different interpretation.

“[Our initial findings] show that the Introducer channel is a viable and commercially solid source of business for NAB and one that will be strengthened by the actions resulting from the risk reviews undertaken,” executives concluded in 2016.

The ensuing changes that were eventually implemented, at least 17 years into the program, would see 3,700 introducers booted from the program while a number of NAB employees were either fired or resigned. How “viable and commercially solid” does the program sound now?

The scheme finally had its commissions scrapped in October 2019 when it was rebranded to the “NAB Referral Program”.

“NAB has acknowledged that the Introducer Payments Program had inherent risks and ultimately fell short of customer and community expectations,” NAB said in a statement.

“We want customers to have the confidence to come to NAB because of the products and services we provide – not because a third party received a payment to recommend us.”

A little late to come to that conclusion, perhaps, after two decades of doing the stark opposite.

In the end, NAB admitted to 260 contraventions of the Credit Act. Even that’s only in the case that ASIC brought, electing to air just a small sample of misdemeanours in the courtroom, and relying heavily on information provided to it by the bank and KPMG.

In doing so, NAB faced a theoretical maximum penalty of more than $456 million for the few incidents brought before the court.

It argued, however, that given the Commonwealth Bank only had to pay $700 million for enabling drug traffickers to launder their spoils, the eventual penalty range should be lowered.

It would go on and contest ASIC’s prescribed $15 million penalty as well, but Lee wasn’t going any lower, noting previously that it remains “significantly less than one day’s net profit for the bank”.

Considering it made money hand over fist from the program in a red hot property market, it shouldn’t be too worried either way.

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