Australian banks have plenty of critics, and now they can add the Small Business Ombudsman to that list.
Key points:
· Report finds relationships between banks and small to medium businesses are unfair
· Ombudsman says big four banks are the main culprits, refuse to improve their practices
· Banks will front parliamentary committee in one month, be questioned on their progress
Kate Carnell, who has authored a report released today into banking practices, has found lenders are not being fair when they enter into contracts with small and medium-sized businesses.
"Across the board the contracts that were in place between banks and small businesses [were] simply unfair," she told AM.
"Banks have all the power and the small businesses have no power at all and there need to be some change."
The ombudsman's report into banking practices has been released today by the Government.
It found that there is an unequal relationship between the banks and small and medium-sized businesses that borrow from them.
"In a nutshell, I think that most small businesses believe that if they borrow money from a bank and they pay back the amount of money that the bank says they have to pay back every month, and they do that on time, that should be enough," said Ms Carnell.
"The fact is we found the banks have a power under the contracts that are currently in place to revalue assets and do a range of other things that means that their loans can be defaulted even when they're paying back the amount of money that was stipulated under the contract."
The inquiry looked at 23 of the worst examples of banking practices.
But Ms Carnell said the problem went well beyond the small number of cases she investigated.
"We looked at the big four banks and we think they are the main culprits," she said.
"I think though what we've got is a banking industry in Australia, particularly the big four banks, that believe for whatever reason that they can continue with business as usual and they don't have to change."
She said the recommendations to the sector, including making contracts easier to understand and stopping the practice of non-financial defaults, could be implemented by the banks tomorrow.
Banks 'kicking the can down the road'
But the ombudsman is frustrated that the banks have refused to improve their practices in the past when similar reports and recommendations have come out.
"Look, I am fed up," she said.
"We've had a look at 17 inquiries over quite a number of years with the banks saying 'yeah, yeah, yeah, we're going to change' and then they don't. And then they find a way to have another inquiry and kick the can down the road to find another reason why they won't change."
The Minister for Financial Services Kelly O'Dwyer, who commissioned the report, denies the inquiry's findings will intensify calls for a royal commission into the banking sector.
"Because the findings of this particular report are very much in line with the action that the Government is taking already," she told AM.
"In fact, the Government has been ahead in actually designing a one-stop shop for consumers to be able to have a resolution of their complaints in a very speedy manner where it is binding on the parties and they get access to compensation where that's appropriate."
The one-stop-shop is currently being worked on as part of a separate inquiry into the banking sector, and the recommendation is due to be delivered to the Government by the end of March.
In the meantime, Ms O'Dwyer said the banks agreed they needed to change their ways and she will be holding them to account.
"Now I'm not going to pre-empt what the response is going to be there, but obviously we're going to look very carefully at their response," she said.
"In a month of this report being released they're going to be in front of a parliamentary committee that will ask them very detailed questions about their progress with not only what they have said they are going to do in the past, but also in relation to this very important report."
The heads of the big banks will be asked about this report, and more, when they appear before the House of Representatives Committee on March 3.