There were inklings when the ads started.

In November 2017, as a banking royal commission began looking inevitable, newspapers, television and social media channels were overrun by a smiling, carefully diverse cast of bank tellers, receptionists and branch managers, all eager to explain how “nearly 80 per cent of Australian bank profits go to shareholders”.

They chirped out happy reassurances, as evangelical in their desire to spread the good news as door-to-door preachers: “Australian banks belong to you.” Left unsaid was the fact the banks’ largest shareholders are usually wealthy direct retail investors and other banks, rather than “everyday Australians” as the ads claim.

We’ll likely never know just how much the Australian Banking Association and its constituent members spent on that campaign. It’s unlikely that the 800,000 people who’ve watched the ads on YouTube did so voluntarily. Given the banks were willing to forfeit an estimated $500 million in annual profits last year by abolishing ATM fees to distract from weeks of headlines about financing organised crime and terror groups, the audacity of this latest act of PR rehabilitation gives an idea of how far up the creek the major banks must consider themselves. If the testimony from the opening days of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is anything to go by, the banks were right to dread the coming public backlash. What they were wrong about was thinking they could do anything to minimise it.

“People who are in long-term unsustainable debt experience stress. That stress then causes them to have physical ailments. It causes strain on relationships. It causes family breakdown.”

Already, the commission has the feel of a principal’s office about it. The usual offenders have been pulled in, mumbling and shuffling their feet, and are being asked to explain themselves. So far, they have responded with a mixture of sulkiness at having to be there at all and displays of contrition of which only marketing managers could have dreamt. In an open letter published the morning of the first hearing, National Australia Bank group chief executive officer Andrew Thorburn said his institution was “on a journey to grow and change”.

Some of the minor procedural sabotages that dominated the commission’s opening days are almost comically childish. On the first morning of hearings, senior counsel assisting the commission, Rowena Orr, QC, criticised Aussie Home Loans for submitting a total of eight paragraphs, denying any wrongdoing in the past 10 years, in response to repeated requests for information of wrongdoing. Commonwealth Bank of Australia, Aussie Home Loans’ parent company, responded to follow-up queries by taking the opposite approach, flooding the commission with reams of spreadsheets recording every rule breach or possible breach the bank had logged.

On the second day, Orr questioned Anthony Waldron, head of NAB’s broker partnerships division, about minutes from a meeting in October 2016, in which the bank detailed how “a straw man has been prepared” to deal with the Australian Securities and Investments Commission’s interest in the “introducer fraud matter”. In the hearing’s transcript, Waldron’s attempts to give the term “straw man” a new, more benign definition run to more than a page.

Chief commissioner Kenneth Hayne, QC, has taken to the role of inquisitional headmaster with ill-concealed delight. Asked by NAB counsel on Tuesday as to how they should table some documents, he replied: “It’s a matter of supreme indifference to me.” Declaring that Thursday’s hearings would begin at 9.45am, instead of the scheduled 10 o’clock, he asked the room: “Anybody game enough to suggest otherwise?” Disputing NAB counsel’s calculations of payouts made to financial advisers, he quipped: “Never trust a lawyer with a calculator.”

These moments of levity were of little comfort to Thorburn and Waldron, who had NAB’s failures exposed in front of them with merciless clarity. Much of the initial focus was the bank’s Introducer Program, which rewarded commissions to finance professionals for successfully referring customers to NAB for loans. The commission heard the program was gamed by financial advisers and bank employees looking for easy bonuses, aided by a corporate culture willing to look the other way.

Waldron admitted that staff and advisers colluded to fraudulently sign up unwitting clients for loans, using fake signatures and supplying fake supporting documents, in order to receive commissions. Some NAB branch managers took cash bribes “in white envelopes over the counter of the bank” in exchange for approving unauthorised loans. At least 1360 customers were affected, with a substantial number receiving loans they were not in a position to pay back. One banker, who was sacked, issued 44 personal loans, 14 of which are still active and more than 90 days in arrears.

Other than for the customers, the scheme paid off mightily for everyone involved. NAB paid out roughly $100 million to introducers from 2013 to 2016, who referred more than $24 billion in home loans. NAB internal policy required introducers to make either $2 million of personal loan referrals or $10 million of commercial referrals a year. Waldron admitted NAB’s own remuneration structure was “one of the root causes” driving staff to engage in criminal behaviour.

The scale of the program’s success could also account for why NAB didn’t look too closely at who was doing the referring. One of the program’s four “star” introducers, who gifted the bank loans worth $139 million, was not a financial expert of any kind. They ran a gym. Another introducer, who was paid $488,000 in commissions, was a tailor.

Wrongdoing by low-level staff was compounded by the bank’s failure to shut down such behaviour or notify authorities quickly. NAB’s principal board risk committee was notified of potential fraud in the program in November 2015, and was nervous enough to commission an investigation from auditors KPMG in December. But it did not send a statutory breach report to ASIC for three months. Of some 60 staff identified to be defrauding customers, only 10 were sacked.

But the lending practices that could do the most long-term damage were merely shoddy rather than criminal. One customer was issued a home loan on the assumption they were buying an investment property, and would use rental payments to service their debt. They wouldn’t. The house was bought to live in, and no rent would be forthcoming. NAB’s executive general manager of consumer lending, Angus Gilfillan, admitted on Wednesday that 15 per cent of NAB home loans breach some part of the bank’s own eligibility requirements.

Karen Cox, a coordinator at Melbourne’s Financial Rights Legal Centre, was the only non-bank witness to give evidence in the commission’s opening days. She testified that the centre she runs, which provided advice and assistance to 25,000 people struggling with loan repayments in the 2016-17 financial year, had noticed a pattern of financial advisers and mortgage brokers pressuring customers into loans that “generate a higher commission for the broker but can cause hardship for the borrower”.

Cox warned of the damage lax lending could do to the economy if interest rates rise in the future, noting that “much of the harm caused by irresponsible lending in the home loan sector may be yet to come”.

But the main focus of Cox’s testimony was the real-world impact of the sector’s depredations. She told the commission of a family “likely to lose their home” after refinancing credit card debt to their home loan. She told of Centrelink recipients being pressured or tricked into high-interest loans by used car dealerships, and an elderly woman “who maintains she has been paying the same $1000 off since the ’90s”.

“People who are in long-term unsustainable debt experience stress,” Cox told the commission. “That stress then causes them to have physical ailments, to get sick. It causes strain on relationships. It causes family breakdown. Their thinking capacity is literally absorbed by dealing with the day-to-day stress of the debt.”

Cox recalled people talking about suicide, and sometimes dying by it, when the stress of unpayable debt became too much.

As the commission rolls on and stories of bad behaviour by the big banks pile up, the smiling faces in the bank industry’s ads will stay on-message, trying to drown out the voices of the people whose lives they have ruined. The commission’s witness list comprises mostly banking and finance industry professionals, consumer rights advocates and regulators; only a handful of victims will get to have their say directly. Their voices will be very hard to hear under all the noise, but it will be their testimony that reveals who Australia’s banks really belong to.

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