A Queensland family was forced to sell its farm after Commonwealth Bank subsidiary Bankwest triggered a default on its loans in a way it admitted to the financial services royal commission was unfair and in breach of the banking code of practice.
The family, Marg and Mel Ruddy, were forced to sell a property for $750,000 in 2013 after a rogue bank employee had valued it at $1.2 million in 2011 to ensure it met the bank’s lending criteria when the couple became his clients.
“This valuation was relied upon by the Ruddys to change their strategy from selling Sunrise [the property] to holding Sunrise and borrowing more?” counsel assisting Rowena Orr QC asked Commonwealth Bank officer Sinead Taylor.
“Yes,” Ms Taylor replied.
The bank became aware that the Ruddys valuation was made in error by mid-2012 following investigations into the officer who made the loan agreement. He resigned from the bank after the investigations found he had made five erroneous valuations to get loans through and transferred money from one client to the account of another to meet interest rate promises.
The bank “should have told the Ruddys” about the erroneous valuation, Ms Orr said.
“Yes,” Ms Taylor replied.
The valuation report prepared for the bank on the property was signed and dated August 1, 2012. However the offending officer had left the bank in March 2012. Ms Taylor couldn’t offer any explanation for that discrepancy or a similar one in the valuation of the family’s second property.
The commission heard that although the Sunrise property was 72 hectares, its valuation was made in reference to another property that was 896 hectares in size.
Despite the bank not admitting to the erroneous valuation, it cut the value of its loan in its own calculations. It then used this as a trigger to declare the loan in default because it had fallen below acceptable loan-to-valuation standards.
That forced the Ruddys to sell the property as part of an agreement dictated by the bank.
“Was it fair and reasonable to rely on a revision to its own erroneous valuation to trigger a non-monetary default?” Ms Orr asked.
“It was not fair,” Ms Taylor replied.
However Ms Taylor told the commission that there had also been a number of financial defaults on the account. However Ms Orr pointed out that when the Ruddys took their complaints to the Financial Ombudsman Service it found that the main default trigger had been the valuation.
The Senate on Thursday passed a motion calling for the extension of the royal commission for a further 12 months. Co-sponsor of the motion, Greens Senator Peter Whish-Wilson, said in a statement that it “sends a clear message to the government to get on and give the extension of time to the commission right now”.
“We don’t want to let the banks just run out the clock on this. We need to get to the bottom of every major scandal to be able to hold these corporations accountable and to have the right policy prescriptions put forward,” Senator Whish-Wilson said.
On the current timetable Commissioner Kenneth Hayne is due to make his final report in February 2019.