SYDNEY (Reuters) - When Australian mother Catherine racked up a A$1,500 credit card debt to spoil her three children at Christmas, she did not expect to be paying it off more than two decades later.

FILE PHOTO: The logo of Australia and New Zealand Banking Group Ltd (ANZ) is pictured on a local branch in Sydney in this April 30, 2014 file photo. REUTERS/David Gray/File Photo

But a combination of late payment, credit limit excess and administration fees, on top of interest, saw the debt rise faster than she could pay it down, and by last year her lender, Australia and New Zealand Banking Group Ltd ANZ.AX, was still chasing payments for a debt that had barely shrunk since she canceled the card three months after taking it up in 1996.

“A couple of times I called them and said ‘how long until I’ve paid it off?’, and they just said ‘no no, you keep paying it until it’s paid out’. It never reduced,” said Catherine, who estimates she has paid the bank A$8,000 in fees, interest and debt payments.

“I felt so stupid and humiliated, I can’t believe it’s dragged on this long,” added Catherine, a full-time carer for a disabled son. She asked not to have her last name published because of fear of embarrassing her now-adult children.

After Reuters contacted ANZ about Catherine’s case, she said the bank offered to cancel her debt and pay her A$2,400. She was yet to decide if she would accept the offer.

An ANZ spokesman said the company did not comment on individual cases.

Such practices are now being picked over in a year-long public inquiry, known as a Royal Commission, into Australia’s A$100 billion financial services sector that has proven a reputational nightmare for banks and money managers.

Australia was one of the few large economies to avoid recession after the 2008 global financial crisis (GFC) and its banks were spared the kind of regulatory intervention that followed in countries such as the United States and Britain.

Wayne Swan, the Australian treasurer, from 2007 to 2013, told Reuters there was a sense of unfinished business after the banks had benefited from government stimulus measures and deposit guarantees during the crisis years.

“Having got through the GFC with the support of their government, they then turned on our government and proceeded to merge, purge and gouge,” said Swan, of the now opposition Labor Party.

“They then turned their back on the Australian people and became more aggressive in their monopolistic behavior.”

LAW VERSUS ETHICS

Three months into its inquiry, the Royal Commission has already prompted the resignation of the CEO, chairman and several directors of the country's largest wealth manager, AMP AMP.AX, and a recommendation of criminal charges against the company.

Daily accounts of misconduct among fee-hungry financial planners, including an admission by Commonwealth Bank of Australia (CBA) CBA.AX it charged fees for providing advice to people who had been dead for years, have shredded banks' reputations and hammered their shares.

But consumer advocates say they are more concerned about cultural issues raised by the inquiry, suggesting an industry focused on boosting stock prices and bonuses through aggressive product sales with little regard for customers’ real needs.

“The pursuit of short-term profits has ultimately led to long-term harm for consumers,” said Katherine Temple, a senior policy officer at the Consumer Action Law Centre.

“Consumers are now faced with a blizzard of products that appear different, but are often owned by the same financial institution or have very similar key features.”

In the case of Catherine, the mother-of-three, ANZ may have breached the industry’s Code of Banking Practice, which requires a lender to actively help a customer who appears to be in financial difficulty, according to the Financial Rights Legal Centre, a Sydney-based non-profit.

It’s unclear whether ANZ broke any law because consumer lending legislation was overhauled to a federal system in 2009, long after her situation came about.

The ANZ spokesman said the bank took the Code of Banking Practice seriously “and where we may have fallen short will work hard to rectify the situation”.

The bank had an “independent Customer advocate” to help customers who felt dissatisfied with their treatment or disagreed with the outcome of a complaint, he added.

A spokesman for the Australian Securities and Investment Commission (ASIC) said it would be inappropriate to comment on specific cases.

Another ANZ customer, a man in his 50s who ran a loss-making market stall selling novelty metalwork items, told Reuters the bank called to offer him business loans of between A$5,000 and A$10,000 every six months for 12 years, then chased him for A$158,000 debt even while he was living in his car.

The Royal Commission has heard similar accounts about other banks, including from a retired couple who said they lost their home based on the advice of a financial planner at No. 2 lender Westpac Banking Corp WBC.AX.

“The law and regulation should never be mistaken as a proxy for, or an alternative to, ethics and morality,” said Michael Blomfield, who held a range of senior positions at No. 1 lender Commonwealth Bank of Australia (CBA) until 2017.

“Some of what we’re seeing is a result of people ignoring ethics by arguing the law is the ultimate arbiter of what’s right and wrong. That’s the argument of the amoral.”

A CBA spokesman said the royal commission evidence had “shocked and disappointed” the company and was “playing an important and necessary role in demonstrating that the major banks and large financial services companies haven’t always acted in customers’ best interests”.

FINES UP, SHARES DOWN

The Royal Commission has raised the prospect of more regulation and more resources for a funding-starved regulator, echoing the 2010 Dodd-Frank Act that imposed measures to curb excessive risk-taking and predatory lending by U.S. banks.

Conservative treasurer Scott Morrison, who once dismissed a Royal Commission as “crass populism”, has proposed doubling prison terms for financial crimes, increasing fines for lenders who commit misconduct and strengthening ASIC’s investigative powers.

Analysts have started “war-gaming” the impact of a tougher regulatory regime, noting the rules were already tightened globally since 2008.

Westpac Banking Corp WBC.AX suffered the biggest fall in its share price in two years by when a UBS client note warned information unearthed by the Royal Commission showed a company previously considered "conservative" had a risky mortgage book.

Shares of Westpac are down 3.6 percent this year, while CBA is down 12 percent and AMP stock is down by a quarter. ANZ and National Australia Bank NAB.AX are down 3 percent and 7 percent respectively.

Some say more regulation could tighten the supply of credit, potentially crimping growth.

“If you change everything, will the credit availability to everybody decline? What does that mean for housing prices? There’s big implications,” said Matthew Haupt, a portfolio manager at Wilson Asset Management.

Westpac declined comment, while NAB referred to recent comments from its CEO who said the bank expected to keep growing lending revenue if regulations tightened.

AMP has issued numerous apologies and promised to improve its culture.

Swan, the former treasurer, said regulation alone would not fix cultural problems, adding he hoped consumers would show their loss of trust in the big banks by taking their business elsewhere.

“That hold they had on peoples’ accounts has been severely burned by the revelations of this Royal Commission and hopefully it sees people gravitate to other providers and the smaller banks,” he said.