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Bipolar banks is spot on...she went for the jugular
Kate Carnell explores the murky side of banking
30 November 2016
Richard Gluyas
In the 30-odd bank inquiries and reviews undertaken since the financial crisis, it’s doubtful there’s been a more productive exchange than the one that occurred today between the small business ombudsman Kate Carnell and representatives of Commonwealth Bank.
Instead of getting distracted by the theatre of the public inquiry into small business lending practices,
Carnell explored the murky side of banking where customers have good reason to believe
Her Inquiry is dealing with a bipolar institution.
The problem occurs when a relationship manager is vetoed by another part of the bank, so that approval for an extension or rollover of the loan, which looked like a formality, is suddenly withdrawn.
The consequences are dramatic, with the customers mostly forced to call in an administrator because they have no time to find alternative finance.
While such cases are rare, the damage they cause to the major-bank franchises is hugely disproportionate to their number, partly because the customers are so outraged they tend to fight to the bitter end.
Many of the 20-plus hardcore cases Carnell has re-examined after they were originally considered by a parliamentary committee involve these confounding allegations of bipolar behaviour by banks.
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Carnell probed CBA chief risk officer David Cohen on the bank’s responsibility when a facility is pulled close to its maturity after a relationship manager had actively courted the customer, trying to sell more products and assuring them that “subject to” certain events the loan would be refinanced.
Cohen acknowledged that this had occurred in some of the cases reviewed by Carnell where CBA had been the relevant bank.
While the overall number was small, the customer experience had been “regrettable”.
The outcome had also been poor for the bank, because it generally lost money when business customers went into administration.
Carnell interrupted to say there was a fundamental difference because the customer tended to lose everything, whereas the financial losses for the bank were insignificant.
Cohen agreed there were huge implications for the customer, and acknowledged there was an obligation on the banks to ensure they did not mislead borrowers.
The problem, however, was the complete lack of guidance on an appropriate notice period for the termination of a relationship.
That said, CBA, like ANZ Bank and NAB yesterday, supported the idea of a holding period to enable the customer to try and locate alternative finance.
Cohen ended by saying that CBA, in some cases, had supported the customer after a complaint had been made about miscommunication.
However, in the cases under review by Carnell, the bank had taken a different view on what the customers had known and were told.
It’s now clear that significant changes in industry practice will emerge from this inquiry.
The momentum for reform was already unstoppable, but Carnell will have played her part.