Wellington has retrospectively amended banking compliance laws to reduce penalties for non-compliant lenders, effectively forcing a class action settlement for a fraction of what customers were legally entitled to receive.
The ASB case saw borrowers receive $572 refunds when they were legally entitled to full interest and fee refunds potentially worth thousands of dollars, according to details shared on New Zealand's Reddit community.
Changing the rules mid-game to protect banks is corporate cronyism at its worst. Retrospective legislation is dodgy enough on its own. Doing it to help banks while screwing over mortgage holders is politically explosive.
The original law required banks that failed compliance obligations to refund customers all interest and fees charged during the period of non-compliance. For mortgage holders, this could amount to significant sums running into thousands or even tens of thousands of dollars, depending on the loan size and duration.
But the coalition government proposed and passed an amendment that dramatically reduced the penalty, arguing it was disproportionate punishment for what they characterized as administrative errors. The amendment was applied retrospectively, affecting the ongoing ASB class action and forcing a settlement far below what the original law would have required.
Banks argued the penalty was excessive for technical breaches that didn't necessarily harm customers. Consumer advocates countered that the heavy penalties existed precisely because banks have enormous resources and need strong incentives to invest in compliance systems that protect customers.
By neutering the law mid-lawsuit, the government sent a clear message about whose interests matter. The class action members who spent years fighting for their legal rights got $572 each. The banks avoided potentially hundreds of millions in penalties.
One Reddit user explained: "The law was put in place to ensure that banks who have a lot of $$$ would be incentivized to invest in their compliance systems to ensure their customers were being treated fairly… the penalty was proportionate to the power and capital the banks have."
The move raises serious questions about the independence of New Zealand's regulatory system and whether the government is more interested in protecting corporate profits than consumer rights.
