Macquarie Bank 2

SYDNEY — Macquarie Bank has admitted to failures in the way it promoted a "welcome" interest rate to new savings account customers, acknowledging a breach of the Corporations Act in a case brought by Australia's corporate regulator.

The bank and the Australian Securities and Investments Commission, known as ASIC, have jointly proposed a $14 million penalty to the New South Wales Supreme Court. The court must still approve it.

Macquarie said it will not contest the proceeding and expects to pay a $14 million civil penalty, which is a monetary penalty imposed by a court rather than a criminal conviction. The bank said it will admit it contravened its obligation to provide financial services efficiently, honestly and fairly.

At the center of the case is how Macquarie described the offer. The bank called it a "welcome variable rate" and a "bonus." ASIC alleges that wording could have led customers to believe the rate was paid on top of the standard variable rate.

The regulator said the welcome rate generally worked differently. It operated as a fixed rate that applied instead of the standard rate during a four-month promotional period, not in addition to it.

A variable rate can move up or down as a bank adjusts it, while a fixed rate stays the same for a set period. That distinction sat at the heart of the dispute. Customers who read the offer as a bonus added to the variable standard rate could have expected their earnings to rise along with it.

Macquarie said the problem arose when standard variable rates rose and exceeded the welcome rate. Customers were then paid the higher standard rate, even though some had expected a bonus margin on top of it. The bank said some of the wording on its website was not sufficiently clear and may have caused confusion.

The account at the center of the case is the Macquarie Savings Account. The bank said the conduct relates to products offered on its website between December 2021 and September 2022.

The proposed penalty is in addition to $8.8 million in compensation that Macquarie began paying on its own initiative. The money has already reached nearly 40,000 customers.

Ben Perham, Macquarie's head of banking and financial services, said the bank received some customer complaints about how the welcome rate was described on its website. It then chose to compensate customers so they would be in the position they would have been in had the rate been a fixed bonus interest margin.

Perham said ASIC has acknowledged the bank's actions were not deliberate, but that Macquarie should have explained more clearly how the welcome rate would be applied. He apologized for any confusion and said the bank has since reviewed all the product descriptions it uses across its website.

ASIC Commissioner Alan Kirkland said the problem went beyond poorly chosen words. "This wasn't just unclear wording," Kirkland said. He said Macquarie's systems and controls were not rigorous enough to identify the risk that customers would misunderstand how the welcome rate worked.

Kirkland said Australians are dealing with cost-of-living pressures and deserve clear information about savings rates and the financial benefits they are promised.

The regulator used the case to urge consumers to check their own accounts. Kirkland noted that Australian households hold almost $1.8 trillion in deposits and that the conditions attached to higher savings rates can be difficult to understand. Higher advertised rates may apply only for a limited time or may depend on the customer meeting certain conditions, he said.

He encouraged consumers to check what conditions apply, whether they are meeting them and whether their bank is paying the interest rate it promised.

The case highlights a gap that can open between how a savings rate is advertised and how it is calculated. In Macquarie's situation, the difference between a rate that is added to the standard rate and one that replaces it determined what some customers earned once market rates moved higher.

Savers weighing a promotional rate can ask several questions before opening an account. Is the advertised rate paid on top of the base rate or instead of it? How long does the promotional period last? What happens if the base rate rises or falls during that period? Are there conditions, such as monthly deposits, that must be met to earn the full rate?

ASIC regulates Australia's corporations, financial markets and financial services, and it brings civil penalty proceedings in court when it alleges breaches of the laws it enforces.

The case and the proposed penalty remain subject to the court's approval. If the court accepts the figure, Macquarie would pay $14 million in addition to the $8.8 million it has already paid to customers, bringing the combined amount to $22.8 million.