In Walker v Members Equity Pty Ltd (formerly Members Equity Bank Ltd) [2024] FCA 15 Members Equity Pty Ltd has pleaded guilty and fined a total of $820,000 by the Federal Court of Australia under the first criminal prosecution under section 12DB of the ASIC Act (in relation to conduct prohibited by section 12GB(1) of that Act) as well as under sections 64(1) and 65(1) of the National Credit Code.

In a prosecution by the Commonwealth Director of Public Prosecutions after a referral by ASIC, Members Equity pleaded guilty to charges of:

• making false and misleading representations in letters to its home loan customers, in contravention of sections 12DB(1)(g) and 12GB(1) of the Australian Securities and Investments Commission Act 2001; and
• failing to provide written notice about annual interest rate and repayment amount changes, in contravention of ss 64(1) and 65(1) of the National Credit Code.

Between 25 May 2018 and 3 September 2018, Members Equity (then ME Bank) sent 589 letters to home loan customers informing them of incorrect minimum repayment amounts to be paid after the expiry of either a fixed-rate or interest-only period. Each of the letters contained a repayment amount that was less than the actual amount required to repay the loan.

Between 28 December 2016 and 23 February 2018, Members Equity also failed to send letters to some customers to inform them that the interest rate and minimum repayment amount was changing after the expiry of an interest-only or fixed-rate period.

In considering the penalty Justice Bromwich observed:

” I accept ME Bank’s submission that the number of discrete breaches across all charges were caused by a single set of root causes by way of coding and data errors, rather than separate steps being taken at any stage. That said, it is of concern that a significant to high proportion of customers in the relevant areas were affected. … An important value of the number of breaches within each charge is to make it clear that there was a real and significant manifestation of a fundamental problem that should not have been permitted to remain in place to the point at which it manifested in a not insignificant number of false or misleading communications, or failures to communicate, which did not have any particularly serious consequences, more as a matter of luck than anything else.”

The penalty was comprised of $750,000 for the charge under the ASIC Act, and $70,000 for charges under the National Credit Code.

Affected customers have been remediated by ME Bank.

The defendant, Members Equity Pty Ltd, formerly known as Members Equity Bank Ltd (ME Bank), was acquired by the Bank of Queensland (BOQ) on 1 July 2021, after the offences were committed in the 20-month period between late December 2016 and early September 2018.

BOQ continues to use the name “ME Bank” and “ME” for part of its business activities, but those activities are no longer conducted by a separate legal entity, and therefore not by the legal entity which was the defendant in the prosecution, although it is the same business. BOQ has undertaken to pay any fines imposed on its wholly owned subsidiary, formally known as ME Bank.

The dollar value of a penalty unit has increased several times since the offending conduct occurred. The current maximum penalties would be about $ 3 million.

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