Bankers must be adhering to a prerequisite of rising through the ranks of banking to

master the art of lying and learn how to use a shredder!

Carnell demands 'plain English' from banks

8 February 2017

Christian Edwards

http://australianbankingfinance.com.au/banking/carnell-demands--plain-english--from-banks/

Small Business Ombudsman Kate Carnell has warned the banking industry that their "mistreatment" of SME customers is causing "heartbreak" and that their collective failure to respond to a ban on unfair contracts is well short of community expectations.

The Ombudsman also alleged that banks lied about their leverage of contract clauses, which “through no fault of their own, small businesses could quickly find themselves in default, even though they’ve made each loan payment, on time, every time".

“The banks argue that they don’t use these contract clauses, however our inquiry found this is simply not true; that banks do in fact utilise these clauses,” the Ombudsman told AB+F. “Much to the surprise and heart-break of their small business borrowers."

Carnell now wants a definition of clarity and simplicity in contractual responsibilities and a clamp on “legalise” in the language used so that the obligations of both parties are clear and “written in plain English".

The Ombudsman vowed to begin sourcing legal precedent to show unlawful examples that permit a large lender to

dictate terms to a smaller borrower, for example where a bank is allowed to shred a loan contract when a small

business borrower has no such legal recourse.

'Inordinate level of power'

Freshly-minted legislation has seemingly not been applied, despite coming into force last November. Just last week, the government released Carnell's findings into small business loans.

“Fundamentally, what we’ve found is that small businesses who take out a loan, do so under the impression that if they keep up their payments, they will stay out of trouble,” the Ombudsman told AB+F. “The reality is that this is not the case.

“In fact, the clauses contained in standard small business loan contracts give banks an inordinate level of power over the borrower, who has zero ability to do anything about it,” Carnell added.

The unfair contract terms legislation have been in force for almost three months and apply to SME borrowers with under 20 employees.

“Basically, the terms in these contracts allow the bank to take action to protect itself from financial risk, by inflicting added demands on the borrower. Banks also have the power to unexpectedly call in the loan and demand repayment in an unrealistic timeframe," she said.

In response, ABA chief economist Tony Pearson said in a statement that the issues raised by the Ombudsman “are important".

“Small businesses drive economic growth and jobs, and having access to finance is key to their success,” he said. “Banks have heard the problems raised by small businesses and farmers and are focused on making banking better for them.

This includes being more transparent and flexible in loan arrangements and setting new standards on appointing receivers and valuation practices."

According to Pearson, the ABA is also working with small business organisations “to make sure they have the information they need to manage and grow their businesses".

While this includes “revamping the existing Financing Your Small Business website", the ABA said it will hold fire until the Khoury report had been handed down.

"We aim to respond to the (Khoury report) recommendations, as well as those from the Carnell Review, by the end of this month," the ABA said in a statement.

'Envy of the world'

Following public blowback in the face of industry-related scandals, the banking industry association kicked off publicity campaigns to reassure banking customers, including a commitment that banks would seek to regain public trust.

"We know people want to see improvements in Australian banking. That’s why we’re making changes for the better. From better products and services, to having the right culture in banks, our goal is to earn your confidence again," said the ABA.

"The strength and stability of Australia’s banks is the envy of the world. Our support and investment in the economy ensures a successful future for all Australians. But it all starts with our customers. That’s why we’re listening to your concerns, and taking action."

However, Carnell argued that any failure on behalf of banks to fully embrace unfair contract laws would erode the

validity of that message.

"The banks are out there advertising how much they really care, which is very interesting if they haven't used the unfair contract legislation to seriously make things simpler and less one-sided," she said.

With the major banks due to front further public hearings into their conduct next month, Dr Rob Nicholls, a former fellow at the Centre for International Finance and Regulation, told AB+F it was essential regulators and lawmakers follow up on any concessions.

“The critical question is: When and how will the recommendations of the House of Representatives Committee be implemented?"

With the ABA, the major banks and the government yet to provide a full and clear response to the ombudsman’s recommendations, Nicholls suggested an appropriate amount of pressure be applied to ensure an outcome.

“Yes the key issue is to grab the offers made and then look for results based on those offers. The report captures them. We just need a little fire on the feet to implement the findings,” he said.