National Australia Bank faces as much as $500 million in fines over a highly profitable scheme that paid "introducers" including gym owners and tailors to bring in home loan customers.
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The corporate regulator launched civil action in the Federal Court on Friday alleging NAB broke credit laws through failures in its introducer program.
The Australian Securities and Investments Commission alleges NAB used unlicensed introducers who overstepped their limited role to "spot and refer" customers.
It follows evidence at the banking royal commission about fraud and misconduct involving 60 bankers and branch managers, including bribes and kickbacks between staff and introducers, and documents being falsified.
ASIC's case against NAB is limited to allegations the bank accepted information and documents from third party introducers who were not licensed to engage in credit activity.
ASIC said the proceedings related to the conduct of 16 bankers in accepting loan information and documentation from 25 unlicensed introducers for 297 loans, between September 2013 and July 2016.
Each breach for conducting credit business with unlicensed people carries a maximum penalty of $1.7-1.8 million, meaning NAB theoretically could be fined $505 million to $535 million.
ASIC deputy chairman Daniel Crennan QC said a maximum penalty of more than $500 million was well beyond what one would expect a court to order.
The introducer program, which is being shut down, paid commissions to people outside the bank such as accountants, real estate agents and even gym owners and tailors, for successful lending referrals.
The spotters were only to provide the bank with a potential customer's name and contact details, but ASIC alleged spotters who did not hold a credit licence gave NAB employees information and documents that went beyond that remit.
They allegedly provided completed home loan applications, tax returns, payslips and letters of employment and other material, ASIC said in a court document.
"In some cases, the information or documents provided by introducers to bank officers was false," it said.
NAB advanced the 297 loans to customers and paid commission to the introducers.
"This conduct exposed the customers and NAB to the risk of wrongful conduct by the introducer, including possible fraud," the ASIC court document said.
"It also exposed customers to a risk that loans would be advanced to them that were unsuitable."
The royal commission and ASIC noted the introducer program was profitable for NAB, bringing in almost 46,000 loans worth more than $24 billion from 2013 to 2016.
NAB announced in March it was ending referral payments to introducers effective October 1.
Its chief legal and commercial counsel Sharon Cook on Friday said the bank took the legal action seriously and would carefully assess the allegations.
"Throughout the royal commission we heard clearly that our actions need to change to meet the expectations of our customers and the community," she said.
"That's why in March this year we announced we would be ending referral payments to introducers. We also established a remediation program in November 2017 to assist impacted customers."
ASIC has banned a number of individuals, and taken criminal action in some cases, over the fraud and misconduct that arose out of the introducer program.
Twenty bankers were sacked or resigned while others were reprimanded.
Australian Associated Press
