Banks in firing line

Dodgy loans set to trigger big compensation payouts

BANKS could be forced to fully compensate customers for the loss and harm caused by dodgy loans — including in some cases erasing a customer’s debt — under a suite of measures being considered by the Morrison Government.

News Corp can reveal financial industry insiders are increasingly preparing for the new mega ombudsman — the Australian Financial Com- plaints Authority — to be handed more wide-ranging powers to force banks and other money lenders to fully compensate Australians for the hardship caused by their wrongdoing.

Treasurer Josh Frydenberg said he “was committed to taking strong action” but looked forward to receiving the banking royal commission’s final report.

The proposed beefing-up of consumer laws comes in the wake of royal commissioner Kenneth Hayne delivering an interim report that lashed the greed of banks and impotence of regulators.

While the body the AFCA replaces — the Financial Ombudsman Service — was viewed as effective, it was limited to only compensating borrowers back to the point they were at before a loan was made.

Under a move suggested by Mr Hayne, the AFCA would be given more powers, including the ability to make banks pay compensation for “losses or harm caused” and waiving a customer’s debt.

It is understood that the Morrison Government does not want to commit to giving the extra powers to the new body until it receives Mr Hayne’s final report.

But the Government wants to show it is taking a stick to the banks, and a more robust consumer advocate would be a good sign, according to industry insiders.

“You might have someone who lost their job and their car and their house,” one source said. “They will want compensation or settlement for harm caused. If you have powers in the body to do that, it is a deterrent in itself.”

Last May, then treasurer Scott Morrison announced the “mega ombudsman” called the Australian Financial Complaints Authority.

The AFCA, which will begin taking complaints on November 1, has a compensation cap of $500,000.