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08 September 2016

Banking inquiry gives ombudsman a chance to examine small business hardships - MySmallBusiness

By Kate Carnell

Last week my office was tasked by the government to conduct an inquiry into the adequacy of the law and practices governing bank lending to small businesses.

We’re currently working through the details of this Small Business Loans Inquiry which will examine specific cases that were investigated by the Parliamentary Joint Committee (PJC) on Corporations and Financial Services in its report ‘Impairment of Customer Loans’.

Pursuant to the terms of reference, we will provide advice to government to help determine if the issues in those cases are now being addressed by current government and industry reforms, or if additional reform measures should be implemented.

Our interim findings will be provided to the Ramsay Review, to inform its wider review of alternate dispute resolution schemes in the financial sector.

When conducting an inquiry such as this, the legislation governing the ASBFEO office clearly outlines specific ‘royal commission-like’ powers to compel interested parties to provide information and documentation, and to attend hearings.

Separate to its inquiry function, my office has other powers governing our day-to-day operations.  The legislation establishing my office was passed last year – with support from all sides of politics – outlining two key ASBFEO functions; to advocate on behalf of small businesses and family enterprises, and to assist them in resolving disputes; in other words, help small businesses stay out of the courts and resolve issues without resorting to costly litigation.

We currently have a number of assistance cases on our books involving small businesses and financial institutions.  Some cases fall outside the scope of the ASBFEO, and we refer those cases to other agencies better placed to help. 

For those cases that do fall within our purview, we have the capacity under our legislation to compel parties to provide documentation and attend mediation, and are within our rights to “name and shame” those who fail to attend.

We can make representations on behalf of small businesses to their banks and ask them to demonstrate leniency while we investigate alleged cases of misconduct, but we can’t force the banks to comply. Similarly, if a case is before the courts, we obviously can’t intervene in that process either. 

These are important distinctions to make; despite some misconceptions, my office does not have the power to stop the banks from foreclosing and repossessing assets.  We can ask the banks to show some compassion and can help ensure all other avenues have been exhausted before a bank takes the step of foreclosing on a loan, but beyond that, the legislation does not provide us with the ability to intervene any further in individual cases.

I’ve spoken to various MPs and Senators – from the government, opposition and the crossbench – in recent days regarding the current Inquiry and our assistance function.  They’ve all shared examples of small businesses involved in disputes with their lenders, and I’ve assured them that while the Small Business Loans Inquiry will examine specific cases identified by the PJC report, other instances of alleged banking misconduct can be explored through our usual assistance channels.

It’s important to remember that the ASBFEO’s assistance function – along with the Inquiry – isn’t designed to provide immunity to small businesses when it comes to paying their debts.  At the heart of both endeavours lies the simple pursuit of addressing the power imbalance that exists between a small business – that more often than not, does not have the capacity to counter alleged mistreatment – and its bank, which all would agree, has considerably more resources at its disposal.