ANZ customers underpaid their mortgages - so why are they set to get a payout?

News this week that the High Court at Auckland had ruled against ANZ in a class action over breaches of the Consumer Contract and Credit Finance Act was the latest move in a long-running saga.

But considering that no customers were left out of pocket by the bank's errors, how and why could they be set to get more money?

What happened?

Between 2015 and 2019, the law said that a lender that was in breach of its disclosure requirements had to repay borrowers all the interest and fees they were charged during the time when they were not compliant with the rules.

Those disclosure requirements include that when a lender makes a change to a loan contract, it has to ensure that the full details are provided to the borrower.

ANZ provides loan variation letters when customers made changes to their loans.

But in 2015, it used a third-party developer to design and make changes to a software package that allowed it to generate these letters. This involved a loan calculator working out what the customers' repayment amounts and loan terms would be.

But due to a coding error this calculator did not include interest that had accrued but not yet been charged when calculating new repayment amounts or loan terms, and so most letters contained incorrect information.

The bank said customers were undercharged about $2 a month.

In his judgment, Justice Geoffrey Venning acknowledged that it resulted in people paying less than they would otherwise have had to.

"To the extent their obligations were affected ANZ has compensated them for that. As a result, the plaintiffs are effectively better off than if the error had not occurred."

What did the bank do to remedy it?

The bank fixed the problem in 2016 and reported it to the Commerce Commission in June 2017.

It also wrote to 101,535 affected customers and paid them a total of $5.591 million.

It entered a settlement agreement with the Commerce Commission and paid affected customers a total of $35.032 million, including the $5.591m it had already paid.

Starting in April 2020, ANZ wrote to affected customers informing them of the further payments to be made in relation to the error and paid out a further $29.44m.

So if people have ended up better off, why does it matter?

Economist Shamubeel Eaqub, who gave evidence as part of the action, said it was important that banks had systems that customers could rely on.

He told the court that a lender's failure in this regard could erode trust in the market and made it harder to compare products, which reduced competition.

What will customers get?

The High Court said ANZ was required to refund the representative plaintiffs $32,728.42. They had borrowing of $650,000.

The plaintiffs were acting on behalf of about 17,000 customers who received inaccurate letters because of the error.

The bank has estimated it could have a maximum potential liability of $125m.

Earlier, ASB agreed to pay $135.6m to settle a class action against it for similar breaches. It said that each payout was either $571.82 or $285.91, depending on their circumstances.

Could this apply to other banks?

A change to the Credit Contracts and Consumer Finance Act means that rather than requiring full repayment of the cost of borrowing in cases of a breach, in future the court would be allowed to decide what compensation was just and equitable.

That means that other banks would not be affected in the same way but the action against ANZ has been exempted from the change.

ANZ said it was considering an appeal.

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