Those contemplating a submission to the Banking Royal Commission will confront a submission procedure that is unnecessarily tricky. Here is the site https://financialservices.royalcommission.gov.au/Public-submissions/Pages/default.aspx
One has to proceed in stages, but without knowing what comes in later stages or having access to it before completing each stage. More, it is not possible to save a partially completed submission. Evan Jones
The boxes where one inserts the substance of a complaint or comment each have a maximum allowance of 3000 characters. This limit is equivalent to a little over 400 words for each box. This limit is reasonably accommodating with discipline and a liberal use of dot points.
The 9-page form that shows the full structure of the submission boxes is not available on the site. Having the full submission form beforehand would seem to be essential to find out the questions and make the submission well-rounded. However the form is apparently only available upon request for those who do not have access to a computer. One could surmise that the submission process has been structured so that submitters will not have a copy of their submission. Strange, because any bank victim making a submission will want to ensure that the details are accurate and that the account is coherent. Caution and good sense mean that the responses to the questions will need to be written in a word document, and then cut and pasted into the staged online submission windows.
Below are the substantive sections of my submission, which numbers #2371, 26 February 2018.
3.2A What did the financial services entity do that amounts to misconduct or conduct falling below community standards and expectations?
Systemic unconscionable conduct and/or fraud against small business (SME) and family farmer borrowers.
The Australian banking system is run by a self-reproducing oligarchy that doubles as a part-time criminal class, operating with insouciance behind an essential public service endowed with the ultimate imprimatur of banking licenses buttressed by guarantees against failure. The authorities find themselves blackmailed into tolerating this institutionalised white collar crime without being fully cognisant of the extent of thaeir surrender. Perennial reactive institutional renovation on the margin has not touched the essence of the problem.
The NAB has been the most consistent offender at an individual customer level. See, as representative, my:
* ‘The Banks and Small Business Borrowers: Case Studies in Adversity’, April 2004.
* ‘Illusion and Reality at the National Australia Bank’, October 2010.
* ‘Illusion and Reality at the National Australia Bank, Part II’, July 2011.
* ‘The parlous history of NAB’s Clydesdale Bank’, February 2018.
The NAB has also become a past master at the ‘revolving door’, strategically directed to vitiating the distinction between private and public. One infers that this has been a contributory factor in political/regulatory/bureaucratic indifference to the character and scale of bank predation.
The CBA has engaged in occasional large-scale collective acts of malpractice, not least its pre-eminent involvement in foreign currency loans lending (early to mid 1980s), and the takedown of close to 1000 Bankwest customers after purchase of that bank from HBOS in 2008. Against other customer segments, add the Storm Financial, Commonwealth Financial Planning and Comminsure sagas – all well reported.
For a broad sweep through CBA malpractice following deregulation:
* ‘The Dark Side of the Commonwealth Bank’, October 2013.
All banks are guilty, including the second tier, which has evidently seen what the Big 4 can get away with.
3.2C What do you think caused or contributed to these events?
The causes are multi-layered.
Most fundamentally, comprehensive financial deregulation, following the recommendations of the 1981 Campbell Committee Report. The report ignored the history of banking in Australia, and the cogent reasons for the structured post-1945 regulatory apparatus. The Report mis-characterised the bank-borrower relationship, posited a jejune mechanism by which private profit was to be harnessed to the public interest (competition plus rudimentary prudential controls), and ignored the quintessential public role of the financial sector and the necessity for ongoing detailed regulation. With the resulting system intrinsically flawed, the authorities perennially patch up the model without confronting its core failures.
The relationship between bank lender and SME/farmer borrower is one of the most asymmetric in all commercial relationships. This is a ‘shooting fish in a barrel’ relationship. The adverse consequences of lending manager incompetence will be attributed to the borrower. Then add malintent. There is thus not merely an invitation but an imperative for malpractice on the part of the bank lender (legitimised by e.g. Gleeson CJ in Berbatis v ACCC, HCA 18, 2003). The constraining institutional structure and intangible culture of pre-deregulation banking has been irreversibly swept away. The professional banker has been replaced by the opportunist ethics-free money-lender.
The pundits have recently discovered the concept of ‘corporate culture’. A sector-wide dysfunctional culture certainly. But one doesn’t change culture with admonishments or by the replacement of CEOs (c/f CBA’s Ian Narev). Culture is determined by structure. To change the culture, change the structure, including the imposition of harsh regulatory constraints.
In any bank default and foreclosure of SME/farmer borrowers, the satellite sectors dependent on the bank teat (law firms, valuers, receivers, some real estate agents) corruptly complement and facilitate bank malpractice.
The regulators and external dispute resolution institutions are missing in action, inept or/and complicit in bank malpractice.
The courts are part of the problem. Save for rare victories in court for victims (mostly ‘disability’ unconscionability), bank lenders emerge the victors. It appears that the judiciary is addicted to the law of contract, essentially inapplicable to the asymmetric lender – SME/farmer borrower relationship.
In short, the banks engage in malpractice in the SME/farmer sector with impunity.
For a representative case study of all of the above, see my:
* ‘The National Australia Bank v Walter / Palatinat’, April 2007.
3.4B What happened when you made the complaint?
I have written to numerous authorities not as an aggrieved bank customer but as a detached observer, atypically familiar with details of bank malpractice against SME/farmer borrowers. By authorities I mean personnel in regulatory agencies (ACCC, ASIC, APRA), relevant Members of Parliament and Senators, the odd public servant (Treasury) and the odd bank senior management.
See, as representative, my:
* ‘Open Letter to NAB Director Ken Henry’, March 2014.
The responses cover the ‘full’ spectrum: from non-response, go away, or ‘we have things well in hand’.
From the perspective of a detached observer, I have made multiple submissions (complaints in another form) to multiple Parliamentary Committee inquiries concerning banking and/or small business. Many have been withheld (contrary to my intent) as confidential, because of their ‘dangerous’ contents. Happily, there appears to have been recently a loosening of censorship within Committee Secretariats. My submissions complement the multiple submissions from financial service provider victims themselves.
The contents of my submissions have been universally ignored. It also appears that victim submissions have been generally ignored. These are stories suffused with the gory details of bank lender perfidy, trust in a presumed professional class betrayed, and profound suffering for a lifetime of personal and family investment to be destroyed, family residence gone of course, and the once hard-working SME/farmer consigned to a caravan or lean-to in a relative’s backyard and surviving on Newstart or the pension. The victim learns that nobody cares.
Committee members defer to senior bank personnel who appear at hearings – those whose organisations’ bad form is the reason for the inquiry in the first place. Parliamentary Committee reports are occasionally hard-hitting on the margin (notably the Senate Economics Committee 2014 ASIC Report), but in general have a milquetoast character. They go through the motions. The odd assertive statement is neutered by political partisanry of other Committee members. Perennially, the response of the reigning government to such reports is even more soft shoe.
Thus in the end, it is business as usual for the offenders. Which leaves victims frustrated, bitter and furious. Hence the long impasse. Hence the long call for a Royal Commission to drain the swamp.
3.6 What culture or governance practices and other practices of the entity are of concern and why?
One can barely scratch the surface in 400 words. A representative sample follows.
* Inappropriate facilities. Key facilities imposed on SMEs/farmers, not least the bill facility, are not fit for purpose. Such facilities do not embody customer needs but bank self-interest.
* Misrepresenting customer details, to ensure greater likelihood of approval from superiors. Perennials include over-valuation of customer assets, incomes and job security. Forging of customer signatures is not unknown.
* Seducing the SME borrower into tying a personal residence mortgage into business loans so that strategic default involves the capture of the family residence as a bonus.
* Demanding excessive security via all money guarantees from immediate borrowers and also borrower family members.
* Pulling the plug on any borrower in a sector deemed by the bank to be likely to face difficult times (‘non-monetary defaults’)
* Defaulting a customer at will. Preparatory vehicles leading to default include:
• verbal commitments by bank officers that are not kept;
• changing unilaterally the terms of the contract;
• changing the terms of facilities, especially bill facilities upon rollover; tying all facilities to the borrower’s overdraft, (unconscionably) repayable at call, and thus a means to comprehensive default;
• claiming as security further assets of the borrower or related parties (including guarantors) that have no contractual basis;
• the discretionary imposition of fees on the borrower;
• the imposition of unwarranted ‘consultant’ investigations into the borrower’s business, both at borrower expense and calculated to downgrade the borrower’s business prospects;
• the discretionary imposition of usurious ‘penalty’ interest rates;
• depreciation of the value of customer assets, via an amenable ‘independent’ valuer, that constitute bank security. The loan to value ratio is suddenly red-lined. Exhibit A is the hundreds of transparently viable Bankwest borrowers (many with very weighty loans) defaulted by the CBA following its acquisition of Bankwest.
• the siphoning off of funds from borrower accounts;
• sale of customer assets under value – a pervasive practice.
• strategic bankrupting of victims (not least by creation of false residual debt) to prevent victim litigation
* The occasional tolerance of a criminal element masquerading as lending officer or adviser dedicated to fraudulent abuse of unwitting customers, with the bank pursuing the victim for the fallout rather than the criminal element.
* Enforced confidentiality of occasional settlements forged with victims. Confidentiality inhibits publicity of precedent and facilitates bank perpetuation of malpractice.
* Persistent failure to ensure comprehensive discovery of victim-related documentation during litigation (C/f Balmford J in NAB v Petit-Breuilh).
3.7 How effective are the mechanisms for consumer redress and how could they be improved?
In a word – useless.
The asymmetry of power between bank lender and borrower/investor has been de facto acknowledged in the establishment of various institutional arrangements to partially moderate overarching lender power. All these institutions have been successfully neutered. This undermining is transparently a strategic act. The banks’ intrinsic power is being dynamically reinforced and reproduced as a matter of principle. In particular:
* Equity courts developed over centuries to complement, for the disadvantaged, the English common law. Yet a key banking law text (Tyree & Weaver, Weerasooria's banking law and the financial system in Australia, 2006, p.488) claims (reflecting judicial practice):
‘[The lender-borrower relationship] is based on contract and the parties deal at arm’s length, with no obligation on either party to act with any higher duty to each other than that required by the law of the marketplace.’
The law of the marketplace being the law of the jungle, the courts act on the presumption that parties to a credit contract are outside the domain of Equity, and indeed outside the domain of unconscionable conduct.
Fraud is the domain of the police, and they are ill-equipped and unwilling to act.
* Government-owned banks were established to serve the broader public purpose. Post-Campbell, they have all been privatised or dismantled.
* The Code of Banking Practice has been a sham from its origins in Treasurer Keating’s self-regulation regime. Privatised in the mid-1990s. Belated inclusion of SMEs in 2003 but immediately corruptly neutered behind the scenes, until deception disclosed. The Code has been reified as having contractual status in NAB v Rice, confirmed on Appeal. Yet the Code remains as a public relations exercise with zero impact on bank behaviour.
* External Dispute Resolution. The Financial Ombudsman Service, on other than minor disputes, is either incompetent or corruptly complicit with its bank funders. The Ramsey EDR Review ignored the rot within.
* Unconscionable conduct. In 1998, ‘business to business’ unconscionable conduct was inserted as s51AC in the then Trade Practices Act. Following Wallis, coverage in financial services was handed to ASIC via the Act’s s12C in 2001. ASIC has aggressively denied its responsibility in this crucial arena. There has been no action against such abuse, in spite of a legitimating statute.
* Farm debt mediation. NSW and Queensland FDM structures have been colonised by the banks; the formally independent procedure has become an additional means to enforce default and foreclosure.
* The court litigation process – consistently partisan, via multiple means. See 3.9.
3.8 What changes would you like the Royal Commission to recommend?
The vision should be to find mechanisms that substantively offset the lender / borrower power imbalance. Recommendations are offered in that spirit, of varying degrees of utopianism given the prevailing adverse political ideology and balance of forces.
* Continue with the nascent process of making illegal any conditions in SME/farmer contracts that are intrinsically unconscionable. There is, however, a limit to which the imbalance can be offset by this means.
* Sort out attribution behind the corporate veil, and make the punishment fit the crime. Revisit the Commonwealth Criminal Code Act, the Corporations Act and the Crimes Act to that end. Expand and tighten the government’s BEAR initiative. Lending officers involved in unconscionable or fraudulent acts, and all senior management in line of command should be made subject to personal fines and/or gaol terms.
* Incorporating FOS within a new AFCA, even with desirable expanded claim/compensation limits, will change nothing unless the deep-rooted complicity with its funders is forensically investigated and rooted out.
* ASIC is irredeemably compromised. Return unconscionable conduct in financial services to the bailiwick of ACCC – as ex-Chairman Alan Fels recommended in July 2004.
* Act to offset the partisanry of the courts.
• no judge who has been elevated to the bench after perennially acting for banks should be permitted to preside over bank litigation.
• the banking connections of judges must be publicly declared and available on record. No judge should be permitted to preside over litigation involving any bank with which s/he has any connection.
• the bench must demand that bank claims regarding the quantum of residual debt be fully documented, and that such documentation be early available to the respondent of such claims and be subject to the right of counter-claim.
• the summary judgement mechanism should be rendered inadmissible for use in bank litigation.
• tampering with court transcripts, other than corrections mutually agreed by all parties, should be a criminal offense. Ditto the prevention of access by litigants to court transcripts. All bank litigation judgments should be publically available.
• revise the banking law tertiary syllabus so that future legal practitioners are educated as to the nature of the bank lender – borrower (especially SME/farmer) relationship.
* Re-establish an equivalent of the Commonwealth Development Bank, necessarily government-owned because of non-commercial rates of return, to be staffed by people with comparable specialist skills (sourced overseas if necessary) and imbued with a comparable culture sympathetic to customers.
3.9 Other comments
The improbability of SME/farmer victims of bank malpractice obtaining justice in litigation has long gone under the radar of the authorities and of the media. No satisfactory resolution of grievous borrower default and foreclosure can be achieved unless judicial partisanry is directly addressed. A judicious examination of representative bank litigation over the past thirty years would be instructive, necessarily probing behind the judgment itself, and confronting the innate subjectivity of precedent.
Beyond the bread-and-butter pro-bank judgments, often involving summary judgment, and the cursory edict ‘you borrowed the money, you haven’t paid it back, end of story’, numerous judgments invite disbelief from the detached observer.
I have written on two, in particular:
* ‘The Somersets and the National Australia Bank: A case study in banking fraud and legal and judicial complicity’ [late 1980s], April 2017 (with John Salmon).
* ‘Westpac, the Foreign Currency Loans Scandal and the de Jersey Factor’ [early 1990s], March 2014.
Perhaps the most spectacular instance of bank malpractice against an SME is that of NAB against Sante & Rita Troiani and their Bundaberg-based Wide Bay Bricks (1993-2001) – from the evidence a long term strategic attempt to bring down a substantial regional competitor of Boral, with whom NAB then had directors in common. The bench is implicated.
de Jersey CJ presided over a summary judgment against the Troianis in March 2001, from which the Troianis were excluded and the transcript denied to them. The Chief Justice also presided over other hearings and judgments involving the NAB, his acknowledged personal bankers, which victim consultant John Salmon (long-time NAB employee) found of general concern. Salmon wrote a 12,000 word summary dossier (abridged from a longer document) in July 2010, which he addressed to various authorities in Queensland, hoping for an investigation of various anomalies – without success.
Another judgment is noteworthy – NAB v Thirup, NSWSC Equity (!), 17 August 2011, before Johnson J. The Thirups are victims of a scam engineered by a criminal gang that included a member inside the NAB. (That gang is presently being pursued by police and prosecutors in the courts.) Gang members wrote false mortgages, one attributed to the Thirups, but here the court is handing their residence to the bank. The Thirups remain without redress for the crime perpetrated against them.
What lies behind these striking reflections of injustice?
Finally, on the elusiveness of the bank lender – borrower / guarantor relationship to even the most astute of legal minds, see my:
* ‘Chief Justice Kiefel and the Banks’, February 2017.