Suncorp pressures customers to pay back irresponsible loans first

Australian Financial Review May 25 2018 6:15 PM

James Frost

Suncorp has defended a practice of attempting to recover the balance of bad business loans within 12 months, even after they were deemed irresponsible by the Financial Ombudsman Service.

Suncorp's banking and wealth chief executive officer David Carter revealed to the Hayne royal commission that approach was widely used when he was asked to explain the bank's rigid approach to recovering one couple's $1 million in debts spread across five loans.

The loans were granted to Mr Peter and Mrs Jennifer Low of Healesville and following Peter's unexpected death in a workplace accident, the Low family attempted to work with the bank to resolve the outstanding debts on which interest was accruing at a rate of $1200 a week.

Following a lengthy and unsuccessful attempt to resolve the situation with the bank the matter was referred to the Financial Ombudsman Service (FOS) which deemed the last loan granted to the couple of $240,000 was irresponsible and ordered the bank to cease charging interest.

The determination instructed the parties to come to an arrangement for resolving the debt. However Suncorp would subsequently contact the Low's and ask them to repay the debt in full within 12 months.

"FOS doesn't give you any guidance about what a reasonable arrangement to repay the debt is," Mr Carter told senior counsel assisting Ms Rowena Orr QC.

"I want to put to you squarely Mr Carter that if this is a practice that has developed across the industry it is an unacceptable practice because it does not accord applicants their entitlement to continue with the loan contract that remains in force," Ms Orr countered.

"Arrangements need to be agreed and if they can't be agreed the loan contract is considered to have come at an end," Mr Carter replied.

At the bank's first appearance at the inquiry on Friday, it was revealed Suncorp would use the Latin term void ab initio in correspondence with the Low's which implied that the contract was void from the outset and it was now seeking to be repaid in full. Counsel assisting Rowena Orr QC said the approach was likely to discourage customers from approaching FOS.

The royal commission also saw notes from Suncorp staff members which showed that banking staff applied a rate of 0.01 per cent to the loan that was subject to the FOS determination because the systems would not allow an interest free loan to be recorded.

Other correspondence between Suncorp staff revealed a generally combative and suspicious approach from the Suncorp customer staff when dealing with this particular hardship request.

Mrs Low's son and television producer Rien Low gave detailed and sometimes emotional testimony detailing the family's experience as they tried to come to an arrangement with the bank.

"It was distressing," he said of the encounters which included threats to evict his mother from her home.

"Frustrating would be an understatement. I mean this takes a lot of someone. We were disappointed."

A submission made by Suncorp to the royal commission revealed a number of other issues with the bank's dealing with customers who had fallen on hard times.

Six Suncorp customers had their request for hardship declined for failing to return forms. The bank also refused to consider requests of hardship to line of credit customers and incorrectly applied hardship requests to joint loans in circumstances whether the customers had become estranged