Lawyer Demands Investigation into MBIE’s Handling of Banking Risk

A prominent lawyer has called for a formal investigation into the processes followed by the Ministry of Business, Innovation and Employment (MBIE) regarding a significant banking class action. Rachael Reed, KC, representing plaintiffs in the case, raised concerns about potential failures in civil service procedures and the representation of key financial risk assessments to Parliament.

In a letter addressed to Public Service Commissioner Sir Brian Roche and Attorney-General Judith Collins, Reed highlighted issues surrounding a risk assessment by the Reserve Bank of New Zealand. The assessment suggested a potential risk of $12.9 billion to the banking sector if no changes were made to the Credit Contracts and Consumer Finance Act (CCCFA). This assessment is critical as it underpins the proposed CCCFA Amendment Bill, currently under review by the Finance and Expenditure Committee.

The bill includes provisions that would allow courts to determine compensation for lenders regarding historical breaches of disclosure from 2015 to 2019, instead of mandating full repayment of interest and fees. Reed criticized the Reserve Bank’s modeling, stating that it relies on unrealistic scenarios and appears to lack mathematical validity. She pointed out that major banks, including ANZ and ASB, have dismissed settlement offers of $300 million as excessive, which raises questions about the validity of the claimed exposure of $12.9 billion.

Reed expressed concern that some members of the committee accepted this figure without adequate scrutiny. She emphasized the need for an investigation to assess whether MBIE officials adhered to established standards of policy advice, consultation, and transparency in their dealings with the Reserve Bank’s scenarios. Furthermore, she called for an examination of whether the analysis justified the retrospective legislation affecting numerous consumers and specifically targeting the class action against ANZ and ASB.

She stated to Collins: “Retrospective legislation is an extraordinary use of extraordinary power that inherently undermines the rule of law. It should only be used where the foundation is transparently justified and unassailable.” Reed argued that the evidence indicates MBIE officials failed to provide a robust foundation for their claims, relying instead on incomplete and flawed analysis.

“The depth of these process failures impacts democratic decision-making and the legal rights of tens of thousands of New Zealanders,” she added, urging immediate attention to uphold the country’s constitutional standards.

In response, Andrew Hume, general manager of commerce, consumer and business policy at MBIE, stated that the ministry is confident in the quality of the advice provided on the retrospective changes. He noted that while MBIE was not initially considering retrospective change during public consultations in 2024, concerns raised about historical breaches warranted further investigation.

Hume acknowledged that the ministry’s consultation was limited by commercial sensitivities and ongoing litigation. “Final decisions were made by Ministers and Cabinet. The bill is currently before the Select Committee for consideration,” he concluded.

As the situation unfolds, the implications of these discussions may significantly affect not only the banking sector but also the legal landscape for consumers in New Zealand.