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02 October 2018

Small business will be disappointed with Royal Commission interim report

Commissioner Hayne’s much awaited interim report on the first four rounds of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was released last Friday afternoon.

From a small business and family enterprise perspective, there will be a lot of disappointed people who were adversely affected by aggressive bank behaviour and have not received adequate consideration from the Royal Commission so far.

We felt the interim report did not address many of the issues that have been raised over a considerable time by small businesses affected by bank misconduct. This is particularly the case with regard to the businesses affected by the purchase of Bankwest by the Commonwealth Bank of Australia (CBA).

There were around 2,000 businesses with performing Bankwest loans who’s loans were defaulted, using overly aggressive tactics, including revaluation of property, changes to loan-to-value-ratios, withholding valuation information and applying exorbitant default penalty interest rates.

It is interesting that in the agribusiness part of the report, similar tactics in respect of the ANZ acquisition of the Landmark loan book were highlighted in the interim report.

However, exactly the same conduct was seen in the CBA treatment of Bankwest loans, and this has not been addressed. CBA used the same aggressive tactics to serve their own commercial interests.

We hope Commissioner Hayne considers extending the timeframe of the Royal Commission to give these small businesses an opportunity to explore this conduct beyond the agribusiness sector.

We are pleased that Commissioner Hayne supported our view that the small business definition of a loan facility in the Code of Banking Practice should be $5 million; not the current $3 million. This was a recommendation from my Small Business Loans Inquiry.

And we agree the Code of Banking Practice is pivotal in addressing future protection of small business borrowers.

Additional regulation could have unintended consequences in tightening lending to small business even further. We agree that the application of the National Consumer Credit Protection Act should not apply to small businesses. Restricting lending or increasing the cost would not be good for the economy.

If Commissioner Hayne is willing to hear from additional small businesses, it is important that the process regarding their legal representation takes into account their financial situation, appropriate timeframes and the scarcity of appropriate legal expertise.