Poor culture on display as customers lose out again

 

 

• Adele Ferguson: The cost of whistleblowing

 

In the lead-up to the federal election there are a lot of last-minute parliamentary reports being released. What happens next has a big question mark hanging over it.  This week the latest report to being handed down was a parliamentary joint inquiry into impaired consumer loans, which calls for a range of recommendations that should be made regardless of who wins the election.  A key focus of the inquiry was to look at whether the banks used constructive defaults to impair loans by getting the loan revalued to change the loan to value ratio. It looked at the role of property valuers and insolvency practitioners.   The key targets were Commonwealth Bank's acquisition of BankWest and ANZ Bank's acquisition of Landmark, both which resulted in many people suffering hugely. The inquiry, which was launched last year, concluded that the banks might not have acted illegally when throwing customers to the wall, but they did behave unconscionably.  The inquiry heard the testimony of customers, examined the role of liquidators and property assessors.  What it found was a need to broaden the ban on conflicted remuneration not just to financial planners but to all bank staff.  This was one of many recommendations, including requiring bank officers to act in the best interests of small businesses.  It also recommended a broadening of the powers of the small business ombudsman on the basis there are a lot of reforms into the sector and given there was no uniform body overseeing them, gaps could remain, which is why the ombudsman should be able to oversee them.  To this end, the committee recommends the government give the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) the power to coordinate existing and proposed reform measures.  It also touches on culture, which has captured the hearts and minds of regulators in the past year as a string of scandals have exposed issues with bank culture.  The 191-page report says: "The banks' compulsion to deliver ever-increasing returns to shareholders has become the overriding driver of behaviour and culture."  Liberal Senator David Fawcett, chairman of the Parliamentary Joint Committee on Corporations and Financial Services, told parliament this week there was an "asymmetry" of power between lenders and borrowers that needed to be addressed.  He said evidence to the committee showed that the actions of the banks cost many small business owners their livelihoods, their homes, health and the breakdown of relationships.  Culture of the banks is no better displayed than the different approaches of Commonwealth Bank and the ANZ Bank in dealing with customers.   The report says the ANZ, after an internal review, realised its conduct was questionable, and voluntarily sought to compensate customers. 

In sharp contrast, the Commonwealth Bank, "consistently denied that there have been issues with their conduct" and how it engaged with customers.  The evidence of witnesses and submitters to this inquiry has strongly called into question the Commonwealth Bank's denial of unreasonable or unethical conduct."

 

These approaches prompted an impassioned parliamentary speech from veteran Liberal politician Philip Ruddock, who is a committee member.  "For me, the Commonwealth Bank has meant a great deal," he said.  Ruddock said he had known many CBA executives over his career and had one of the bank's money boxes, given to him as a schoolboy.   "I look at somebody contributing to national debate like David Murray [a former chief executive of CBA] … I look at somebody like Les Taylor who I knew as corporate counsel.  And I look at those who followed and I cannot see people conducting themselves in the same way."  Ruddock said he had never met CBA boss Ian Narev. He said during the course of the inquiry he had asked the bank to sit down and try and work out a reasonable settlement with clients. "The bank has refused to do so," he said.  He suggested it might be because of the size of the potential claims. "Imagine if you have 2000 customers, all looking for $1 million compensation, $2 billion might come off the balance sheet," he said.  "Wouldn't that be dreadful? You can see why they might be taking such a view."  Labor party committee members, including Senator Chris Ketter and deputy chair Deborah O'Neill, released a dissenting report that said impaired customer loans by banks should be included in any Royal Commission into the financial services industry.  The release of the report on the eve of a federal election has steeped it in politics. Despite this the overwhelming message is that banks, some more than others, left to their own devices, won't put customers first.  They will game the system based on a culture that is motivated by profit before all else.