Small business has been in the spotlight tor the past fortnight, with the financial services royal commission highlighting some traumatic experiences and salutary warnings from business people.
In his summation of this round of sittings, counsel assisting Michael Hodge QC highlighted a series of examples of bad behaviour by the banks which devastated lives and could result in moves against them by the regulators and legislators.
These are some of the more egregious situations and the recommendations resulting from them.
NAB and Ross Dillon
Mr Dillon sold his farm in the NSW Southern Highlands in 2015 with plans to put $300,000 into his cash-strapped music business and downsize to a house in Melbourne. But when he settled, the bank took all the money despite admitting at the commission that it had no right to do so.
“It is open to you, commissioner, to find that NAB might have engaged in misleading and deceptive conduct,” Mr Hodge said.
Firstly, because the bank didn’t tell him that it planned to take all the money from the sale, and secondly because it told Mr Dillon it was entitled to take the sale proceeds when in fact it wasn’t.
Bradley Wallis and Bank of Melbourne (Westpac)
The bank gave Mr Wallis and his wife a loan to buy a country bed and breakfast in NSW. When the loan was written, it was misclassified as residential to ensure the Wallises could afford it and the bank officer made his commission.
When they sold another property the bank kept $100,000 of the settlement to make good their mistake.
It is open for the commission to find “The Bank of Melbourne engaged in conduct that was misleading or deceptive … and fell short of community standards, Mr Hodge said.
Witholding vital information
Two NSW publicans lost their hotels after banks ordered valuations be carried out and did not share their results with their clients. Instead they called in the loans and brought in receivers.
The Stanford brothers had a pub west of Katoomba, with a $1.2 million loan from BankWest. When things turned bad after the global financial crisis, the bank wound back the loan term from 15 years to one year, put up interest rates and did a revaluation.
The brothers found out about the revaluation when a valuer arrived. They were not shown details and charged $9900 for the cost of the valuation, which was ultimately used to trigger receivership.
Stephen Weller’s pub in Macksville, in NSW, suffered a similar fate when the bank valued it and refused to give him details of the figures. Receivers were also called in there, resulting in significant losses.
Mr Hodge, in reference to the cases, raised questions for the commissioner to consider.
“Is there any reason why valuations or investigative accountants reports ought not to be provided to customers in circumstances in which the reports have been paid for by the customer?”
Unconscionable conduct on guarantees
Carolyn Flanagan, a blind woman with cancer and a number of other debilitating illnesses, lost her family home (but can remain there for life) after giving her daughter a guarantee for her business loans.
Mr Hodge said it was open to the commission to find that Westpac may have engaged in unconscionable conduct by relying on a guarantee from Ms Flanagan, despite the bank being in a superior bargaining position considering her health, straitened financial circumstances and the fact that she was unlikely to benefit from the business despite this being the basis on which the guarantee was given.
Mr Hodge also questioned the actions of the Financial Ombudsman Service in not giving adequate support to Jennifer Low in negotiating repayment terms with Suncorp after FOS found in her favour.