The peak body for Australian small businesses is calling for the banking royal commission to go beyond the numbers and examine the very human impact of poor banking practices, as the commission kicks off two weeks of public hearings focused on SMEs.
Starting today, the royal commission will shine a spotlight on how the country’s largest banking institutions treat small and medium business, particularly in relation to how they provide credit.
Over the next two weeks, the commission will delve into five key areas affecting SMEs: responsible lending to small businesses; the approach of banks to enforcement, management and monitoring of business loans; product and account administration; the extension of unfair contract terms legislation to small business contracts; and the Code of Banking Practice.
The ‘case studies’ due to be discussed include those involving ANZ, the Bank of Queensland, Commonwealth Bank and Bankwest, Westpac, Suncorp and National Australia Bank.
The Australian Securities and Investments Commission and the Australian Banking Association are also listed among the case studies.
Among the witnesses listed to give evidence on the first day of hearings today is a pensioner who lost her home after she acted as a guarantor for a business loan for her daughter and her partner.
According to Fairfax, the loan was from Westpac as was intended to help the couple purchase a franchise business in Sydney. But the business did not succeed and as a result, the pensioner lost ownership of a home that she had previously owned outright.
According to the report, the loan was for $160,000, but she believed it was for $20,000. She said she was also told by the bank that she was listed as a partner in the business, which was “news to me”. After negotiations, Westpac reportedly agreed to give the pensioner a lifetime tenancy of the property. The bank said it would be inappropriate to comment on a matter being discussed at the royal commission.
“I hope it never happens to another elderly person ever and it stops the banks from doing this and lying to people,” the pensioner told Fairfax.
“I don’t care if it costs me my house, as long as it doesn’t cost anyone else their house. If I can save one or two people than I’m OK.”
Peter Strong, chief executive of the Council of Small Business of Australia, says while those in the small business community are well-aware of the stories about how poorly small business people have been treated by the big banks, “the general population will be shocked”.
“Getting the stories out there is really important,” Strong tells SmartCompany.
But Strong also wants to see the royal commission looking after the small business people who are putting up their hands to share their stories, including regarding their mental health.
Through the public hearings, he’s hoping to see an understanding that “an impact on a business is an impact on a community, especially if the business employs people”.
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“There is a domino effect when a business is mistreated,” he says.
Compensation for victims should be determined by an independent body, he says, and such decisions should take into account the effects on businesses and individuals.
But Strong doesn’t necessarily want to see more recommendations to change regulations, given significant work has now been underway for 12 months to improve the relationship between the big banks and small businesses.
This work includes the research and recommendations put forward by Australia’s Small Business and Family Enterprise Ombudsman Kate Carnell, says Strong, as well as ongoing conversations between Carnell’s office, COSBOA, regulators, the banks and the Australian Banking Association.
“We’ve seen some good successes: changes in contracts, a new code of conduct,” he says.
That’s not to say there’s not more work to be done; the big issue in all of this is access to finance, Strong says.
There are plenty of examples of loans being incorrectly issued, says Strong, but equally, too many small business owners simply cannot access bank loans to start their business or keep an existing business going.
“The rules are so tight and they’re wrong,” says Strong.
And related to this is the high proportion of small business owners who are forced to fund their ventures by other means, including through personal loans or home loans. This is one of the issues discussed by COSBOA in its submission to the royal commission, and Strong says he expects it to attract increasing scrutiny.
To watch a live broadcast of the royal commission’s hearings, click here.