This is a transcript from The World Today. The program is broadcast around Australia at 12:10pm on ABC Local Radio.
The World Today Archive Friday, 27 July , 2001 Reporter: Tanya Nolan
ELEANOR HALL: Now to the continuing fallout from Monday's Four Corners story, part of which alleged a secretive and controversial practice undertaken by the Commonwealth Bank.
[Excerpts from Four Corners program]:
BRUCE FORD: People in the bank, they're the ones that make it possible for this whole mess. They're the ones that should be facing the music for what they've done to people. That's the critical issue that they keep getting away with it. As long as that happens, there'll be no change.
WENDY MURRAY: It's imperative that there's a royal commission because it's the only way that a bank can be asked to provide information and it's the only way that they can be made to put forward the truth.
ELEANOR HALL: Two disgruntled Commonwealth Bank customers speaking earlier this week on ABC TV's Four Corners program.
Today the Commonwealth Bank has admitted it does have a lot to learn about improving its service to customers. On Four Corners the former CBA clients claimed their businesses were forced to the wall after the bank foreclosed on their loans. They allege they were victims of a banking practice known as "shadow ledgers".
A parliamentary inquiry into the banking industry last year uncovered the use of shadow ledgers where banks keep two sets of books to trace unrecovered debts. Critics allege the books are used to keep customers in the dark.
This morning, as Tanya Nolan reports, the Commonwealth Bank confronted its critics face to face in the ABC's studios in Sydney.
TANYA NOLAN: Wendy Murray and Bruce Ford have a lot to say to the Commonwealth Bank and this morning they had their opportunity.
CBA REPRESENTATIVE: In fact it was a report that Mr Ford himself commissioned that concluded that, "the company is currently facing extreme cash flow difficulties. It cannot trade out of the current difficult position without undertaking orderly asset sales."
Now that was a process then.
BRUCE FORD: You have elected to self-serve yourself on that quote. You have not elected to include the final paragraph, which said, "to continue the businesses long-term viability". That is a self serving extract.
REPORTER: Now we clearly can't undertake the mediation in a live radio studio five minutes from the news, but I understand the intensity of your feeling.
TANYA NOLAN: Speaking on Radio National's Life Matters program, the couple reiterated their experience with the Commonwealth Bank, a story told previously on the ABC Four Corner's program on Monday night.
The couple lost their horticultural business several years ago after the Commonwealth Bank recalled their loan. Bruce and Wendy gave evidence to a Parliamentary Inquiry into the Banking Industry held in October last year, which revealed the practice of banks in keeping shadow ledgers.
While the inquiry found that overall the Commonwealth Bank had done nothing improper, it did criticise what it described as the poor practice of keeping shadow ledgers.
That's the practice whereby banks keep two sets of books to track a debt that's legally owed to them. Previously the banks would not reveal the details of the shadow ledgers but the Commonwealth's chief financial officer, Michael Ulmer says that has since changed.
MICHAEL ULMER: We took steps back in June of last year to lead the industry. Because what we're talking about here is industry practice and to lead the industry by providing statements to all borrowers.
As I said before the Parliamentary Committee, we did make a mistake in issuing a statement, which is in fact the accounting record which showed the write-off that we'd done for the purposes of properly forming our view on our profit for the year.
We issued that statement and unfortunately issuing that accounting record rather than a statement of legal debt does lead to that situation of confusion.
TANYA NOLAN: Mr Ulmer says the bank has learnt much from the inquiry.
MICHAEL ULMER: It's always important for us to look at things that we can do better. In this particular matter there's a very complicated situation that effects a very small number of our borrowers and what we have identified there is we do need to continue to advise them of how much they legally owe us.
These are situations where we're dealing with customers who are unable to repay their loans. Their businesses have gone into financial difficulty.
They may well be taking action against the bank and the practise of all banks in the past is in that situation, when that occurs, when you're into litigation to primarily just deal through the lawyers and that's something we've all experienced in other aspects of business.
What we decided to do before the inquiry was to provide, as a matter of course, to that very small number of borrowers, the statements of what they legally owe us and what will be proved in any court of law.
It does require a stove to put in place separate procedures because we have to be doubly careful in dealing with those individuals because they are, very often, in the process of taking action because they're disputing certain things to do with their account.
TANYA NOLAN: So are you saying there could now be three sets of books?
MICHAEL ULMER: No, I'm not saying there could be three sets of books. That would be a very silly suggestion to make. No what I'm saying is that we're required by accounting regulations in our books of account, that we prepare our financial statements from to make appropriate allowance in the rare event where we think we may not get all the money back that we've lent to somebody.
In a completely different situation, we have to also, at the same time, maintain what's called a legal record of debt, because although we think the customer may not be able to pay all their money back to us in that rare situation, we do have to record legally what they owe us and that's the amount that they continue to owe us.
TANYA NOLAN: Chris Connolly's the director of the Financial Consumer Policy Centre at the University of New South Wales and he's been actively campaigning for greater disclosure from the banks to their customers.
He says after the parliamentary inquiry, the Commonwealth Bank gave an undertaking to mediate with those customers who'd not been provided with their account details contained in the banks shadow ledgers.
CHRIS CONNOLLY: Look I just can't understand why the bank just doesn't admit that it needs to mediate these disputes. They've still got a large number of people who've been affected by shadow ledgers and the lack of bank statements.
Those matters have been outstanding for many years. Surely this is the opportunity to clean that up and move ahead on a more positive note and it was disappointing that the bank didn't seem willing to look at that today.
TANYA NOLAN: The banks claim that there's a very, very small proportion of their customers who actually default on their loans were unable to repay their debts. Is that the case from your evidence? Do you understand that this is more widespread then they're alleging?
CHRIS CONNOLLY: I think it is more widespread then they would want us to believe, but in any case -- look, for all of those people who are borrowing, they could be affected by this if they did get into any difficulties repaying their loans, so it's like the Sword of Damacles hanging over everyone's head for when things go wrong.
If we can have a more open and transparent relationship between banks and customers, we'd be going forward rather than backwards.