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30 November 2017

Royal Commission welcomed

The Australian Small Business and Family Enterprise Ombudsman has welcomed the Prime Minister’s announcement of a Royal Commission into the banking sector.

Ombudsman Kate Carnell said she hoped the inquiry would examine past cases where small businesses had been unfairly treated.

Ms Carnell said her Small Business Loans inquiry earlier this year had identified numerous cases where small businesses had suffered from questionable conduct.

“The asymmetry in power between the banks and small businesses, together with the conduct of banks particularly since the global financial crisis in 2008, has left many small businesses in a devastating financial position,” she said.

“Many have lost their businesses as well as their family homes, with no prospect until now of obtaining access to justice.

“I’ve been concerned that in some cases there may have been unconscionable behaviour by the banks and this should be examined in the Royal Commission.”

Ms Carnell said there had been significant progress in the past few years towards changing the behaviour of banks, including Unfair Contract Terms legislation and the establishment of the Australian Financial Complaints Authority.

“What’s been missing is the capacity to review past disputes and award compensation,” she said.

“It’s not acceptable that banks called in loans where repayments were up to date.

“Businesses were forced to close, people lost their jobs and entire communities suffered adverse impacts.

“The contract clauses were so one sided there was no constraint on the banks to stop them foreclosing on loans that didn’t fit their risk profile.”

Ms Carnell said the Small Business Loans Inquiry heard cases that clearly showed banks deliberately employed systematic poor and unreasonable behaviour to terminate business loans.

The power imbalance meant small businesses had been denied access to justice.

“Many settlements occurred under duress because borrowers had little choice but to accept the bank’s offer,” she said.

“They could not refinance because cash resources had been drained, they were facing penalty interest and had no negotiating power.

“I hope the Royal Commission probes these past cases and recommends compensation for those who were unfairly treated.”