Despite eye-opening headlines and angry customers left in their wake, the royal commission’s initial findings have let most, though not all, banks off the hook from any form of punishment or redress.
Senior counsel assisting the commission Michael Hodge said that, while there are conflicting views on the matter, he could find no evidence to warrant additional regulations being imposed on banks.
This backs up a previous assertion by My Business that all that is needed is better enforcement and oversight of existing rules.
In relation to the specific case studies raised during the round of hearings into SME lending, Mr Hodge recommended the commission make the following findings:
- Westpac breached the code of banking practice and FOS terms of reference in its dealings with the Pie Face franchise operated by Marion Messih. Westpac also breached its own policies and demonstrated unconscionable conduct in its dealings with disabled pensioner Carolyn Flanagan and her guarantee over her daughter’s business loan.
- Bank of Queensland (BoQ) made multiple breaches of the code in its dealings with two Wendy’s outlets operated by Suzanne Riches, and its remuneration structure for franchisees (which it calls owner managers) under commission only is at odds with delivering consumer outcomes.
- CBA's actions post-acquisition of Bankwest were difficult but necessary to redress a number of Bankwest failures. Bankwest itself was cleared of any misconduct in the four case studies presented, although communication with customers fell below community expectations.
- Suncorp made multiple breaches of the code and engaged in conduct below community standards and expectations in its dealings with the newly widowed Mrs Low (represented at the hearing by her son Rien Low).
- The Financial Ombudsman Service (FOS) itself failed to act as an effective avenue of customer redress for complaints, as demonstrated in Low case.
- Bank of Melbourne breached the code, engaged in misleading or deceptive conduct and displayed conduct below community expectations by withholding $100,000 in funds from Bradley Wallis when it had no legal justification for doing so. The misleading conduct could also warrant pecuniary action.
- NAB breached the code, its employees breached the bank's own policies, it may have engaged in deceptive conduct, and its conduct fell below community standards in its dealings with Ross Dillon and National Music.
- The most serious judgement was reserved for CBA over its handling of business overdraft problems. The commission found it could face pecuniary action for by making false statements and not notifying ASIC of a systemic issue within the required timeframe.
However, while there were no recommendations for tighter regulatory controls or direct requests to bring regulatory or legal action against banks or their employees, the hearings raised a number of issues that warrants further examination by the commission and all relevant parties.
- Where the responsibility lies between the lender and borrower.
- The role of loan guarantors, particularly how much information they are provided, and when banks should refuse an offer of guarantee.
- Whether banks do, and should, be made to act in line with community expectations and standards.
- Loan agreements becoming so confusing that banks themselves can’t even understand them, such as the examples of banks involving themselves in property sales to pay down business debt, despite having no contractual right to do so.
- The role in which unfair contract terms have destroyed trust in the banking sector by allowing banks to change approach, rules and definition mid-contract.
- A distinct lack of transparency and non-disclosure or poor/delayed communication of key information in banks’ decision-making.
- The imposition of unrealistic timeframes on borrowers for the payment of associated costs/provision of relevant documentation.
- Banks' advertising and marketing practices creating unrealistic and potentially even misleading expectations about the role a bank provides to businesses.
- An overreliance by banks on sales targets that push employees into poor compliance and lending practices.
Mr Hodge concluded that all business borrowers should remember that banks are not there to be their friend, nor be a source of financial advice or an independent financial adviser.
Instead, he said that third parties, such as lawyers, accountants are and should remain the primary source of business and financial advice on both borrowings and business performance in general.
The full run down on proceedings and findings can be found on the My Business live blog of royal commission hearings into SME lending.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.