Banking Industry Complaints
BANKING INDUSTRY COMPLAINTS
Mr ELLIS (South Coast) [10.23]: I ask the Governor and the Minister for Fair Trading, as a matter of urgency, to establish an inquiry into the banking industry, particularly in relation to transactions of the type affecting the Egans which I described to this House three weeks ago. Since then several hundred similar cases have been brought to my attention. I now have in my possession information about more than 300 cases, with even more expected. The substance of the complaints put to me indicates that the banks have not been operating in an honest or equitable manner, and certainly not according to the expectation that customers would have of their banks. Every day, Australians like the Egans are virtually made destitute, having lost their businesses, their assets, and often their homes as well as their health, through devious and suspect banking transactions.
The common themes through the large number of complaints I have received in the past two weeks are that unauthorised, often multiple, loan accounts are created by the bank which incur charges and interest and inflate the debt rapidly; interest calculations are wrong and inflated, and borrowers who query them are not given any assistance in having the calculations checked for accuracy; and deposits and payments are transferred by the bank, without the customer's authorisation and knowledge, between various borrower accounts, often tipping one account into default and thus triggering penalty charges. I am aware of instances in which banks have altered the interest rates during the term of the loan. For example, a loan negotiated at cost of funds plus a margin of 1.25 per cent has been altered to a reference rate of 3 per cent above cost of funds on average, plus interest of 6 per cent, plus debt administration fees of 1 per cent, resulting in affective interest rates of 10.7 per cent above the cost of funds, which could lead to a rate of more than 24 per cent being paid by the customer. This creates a cash flow problem, triggering a default clause that allows the bank to seize assets and sell them at a fire sale price.
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Other common themes of complaints I have received are: irregular and miscellaneous charges and reversed entries appearing in statements, for which no explanation is given; bank legal bills of thousands, and sometimes hundreds of thousands of dollars, appearing on the customer's bank statements, followed by demands to pay those bills; and the inability of borrowers with a grievance against the bank to obtain duplicate loan agreement and mortgage documents so that they can get to the bottom of their problems and obtain legal advice as to their rights. In one case the borrower was told that she had to pay $10,000 in legal fees before the bank would release her file so that she could commence legal action. It cost a further $1,800 for a solicitor to peruse her file.
Often there is no reply to correspondence at all, and customers have been told they are not entitled to the documents. Another complaint relates to the sudden surfacing of multiple contracts that are over and above the original agreement. Others relate to the existence of an addendum to the contract of which the client may not be aware; it could be a memorandum or annexure, depending on the banking organisation, attached to the mortgage. Each bank has its own description of such an instrument. For instance, the State Bank uses a document referred to as "memorandum X208233", a 24-page document, finely printed, in conjunction with the parent agreement. Triggering such a device by means previously mentioned can lead to a doubling of interest charges as penalties.
There also exists a regular practice of bank clients being directed to arranged solicitors to provide advice to the clients on contract details, instead of clients being advised to seek an independent solicitor. Often the client finds the documents have already been deposited with those solicitors, waiting for signature. It has been put to me by several informants that the bank's estimate of the debt is protected from challenge as a condition of the contract contained in these hidden addendums. Some specific case examples brought to my attention include interest charges being inflated by more than $600,000, with customers nevertheless having to pay thousands of dollars to accountants to independently recalculate the interest. In that case there was a calculation of an extra $200,000 in interest.
Some complainants stated that the bank refused to provide the necessary documentation to enable them to mount a successful court action, and lawyers mysteriously pulled out of their case just days prior to the hearing, claiming that they had a conflict of interest because they had been offered a bank brief since taking on the borrower's case. The complainants' only remaining recourse is the courts - an expensive exercise that a borrower whose assets are already controlled by the bank and who cannot raise the six-figure sums it takes to fight a vast financial institution with unlimited legal resources, cannot afford. In light of the devastation caused by the banks to hundreds, if not thousands, of small businesses throughout New South Wales, I call on the Government and the Minister for Fair Trading to launch an immediate inquiry into all the cases that have come to my attention. I will provide details of those cases and any others for investigation.
Mr FACE (Charlestown - Minister for Gaming and Racing, and Minister Assisting the Premier on Hunter Development) [10.28]: I thank the honourable member for South Coast for his contribution this morning. I will relate this matter to the Minister for Fair Trading. I suggest that the honourable member immediately take whatever documentation he has to the Minister. I know that she will pursue the matters with great vigour. The cases that the honourable member has brought to the attention of the House this morning are most disturbing. If only half of what he said were true, that would be a matter of grave concern. But I imagine that everything he said is true.
There is a loss of confidence in the banking industry. That is understandable given what has happened in various industries. One case in the hospitality industry involves review of a loan of $200,000, in circumstances which could put the borrower in an extremely bad financial situation. I implore the honourable member to pass on to the Minister the documentation as quickly as possible so that the matters can be dealt with. Again I commend him for raising these matters of concern to him and his constituents.