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Key Points:
- ANZ shares down 1% after announcing settlements for two class actions.
- One action involved excessive fees on superannuation funds; the other focused on unfair car loan commissions.
- The bank will pay $14 million and $85 million, respectively, but without admitting liability.
- These settlements are already covered by provisions set on 30 September 2024.
ANZ Group Holdings Ltd (ASX:ANZ) shares experienced pressure on Friday morning, with the stock falling by 1% to AU$29.82. The decline follows the announcement that the major Australian bank has reached settlements in two significant class actions, brought against it in 2020. In total, the bank will pay out close to $100 million, though it has not admitted to any liability in either case.
The first class action pertained to ANZ's handling of superannuation funds during a period when the bank owned OnePath Custodians and OnePath Life. The lawsuit alleged that the trustee overseeing these funds breached its duty to members by charging excessive fees. These fees were supposedly used to pay unnecessary commissions to financial advisers, which resulted in higher costs for members without any additional benefits. Another key part of the complaint was related to the way super funds invested members' cash deposits. Instead of shopping around for better interest rates, the funds were allegedly deposited with ANZ itself, which offered lower returns than other potential options.
In response to these allegations, ANZ has agreed to settle the lawsuit by contributing $14 million. OnePath’s current owner, Insignia Financial Ltd (ASX:IFL), acknowledged the settlement but reiterated that the agreement was made without any admission of liability or wrongdoing by any of the involved parties.
However, this was not the only class action ANZ was embroiled in. The second lawsuit, known as the Esanda class action or the Flex Commission class action, also reached a settlement. This case involved car loans and accused ANZ, as well as Westpac Banking Corp (ASX:WBC), of unfair lending practices between 2011 and 2016. ANZ had sold its Esanda Dealer Finance portfolio in 2016, but the lawsuit targeted practices that occurred before the sale.
The Flex Commission system in question allowed car dealers to set both the interest rate and loan term for car buyers, incentivizing dealers to charge higher rates and longer loan terms in order to increase their own commissions. As a result, many consumers ended up paying more in interest on their car loans than they would have under different circumstances. This class action sought compensation and relief for the consumers impacted by these lending practices.
ANZ has now agreed to settle the Esanda class action by paying $85 million. Westpac’s involvement in the case also means that it too will face legal and financial consequences, though specific details regarding Westpac’s contribution were not disclosed in today’s update.
While the total payout for both class actions stands at AU$99 million, the bank’s management has assured shareholders that these costs were already anticipated and have been accounted for in the bank’s provisions as of September 30, 2024. This means that the financial impact on the bank’s operations and profitability is expected to be minimal, despite the size of the settlements.
Although these legal settlements may not have come as a surprise to ANZ’s management, investors are still showing concern, with the bank’s stock slipping in response to the news. The ongoing scrutiny and legal challenges surrounding ANZ’s past business practices, particularly in relation to superannuation investments and car loans, have kept the bank in the headlines.
However, the fact that the settlements were reached without any admission of liability is seen as a strategic move by ANZ to close these legal disputes while maintaining its reputation. For now, the focus will likely shift to how the bank moves forward and whether any further legal challenges might arise as a result of its previous business operations.
