The Bank of Queensland has admitted it failed to act in the best interest of a customer when it lent her $280,000 to buy two Wendy’s outlets in suburban Adelaide.
The bank knew the loan to Suzanne Riches involved maladministration and considered rectifying the situation by reducing her debt by $56,000, charging no more fees on her remaining principal, and reimbursing legal fees and interest, the royal commission into financial services heard in Melbourne on Thursday.
However, no offer was made despite Riches defaulting.
The bank branch, in Pirie Street in Adelaide, has since closed, and the branch manager of the franchise was sacked for misappropriating $150,000 from two clients.
This week’s commission hearings have put the spotlight on the major banks’ willingness to lend money to borrowers with often problematic business plans.
On Wednesday the commission heard the case of Riches, a primary school teacher of 42 years who was forced to sell her block of land after entering into a questionable business loan for $280,000 to buy two Wendy’s outlets in Westfield Marion in southern Adelaide.
On Thursday Douglas Snell, the general manager of performance product governance at BOQ, told the commission Riches had originally agreed to a conditional offer of $280,000 loanover seven years with monthly interest payments of $4,420.
However, the loan agreement was changed at the last minute to $280,000 over three years with monthly interest payments of $8,696. The doubling of the interest payments meant Riches could not meet the repayments and she defaulted.
Snell said the branch officer in Pirie Street had no authority to make the conditional offer to Riches. And he had broken bank policy by giving her a seven-year repayment term because the lease on the restaurants was for only three years.
Senior counsel assisting the royal commission, Michael Hodge, asked why BOQ had appeared slow to investigate: “At time of default, there was no review of the loan assessment process? No one went to look at why it was made in first place, even though there had been an immediate default?”
“No,” Snell said, adding that he did not know why BOQ had not made an offer of recompense to Riches.
Kenneth Hayne, the head of the royal commission, later told Snell he had heard a lot from banks about “putting customers first”. But he questioned whether the comments were counterproductive because customers could be forgiven for not realising that the banks’ objective in making loans was to make money out of the customers.
“Is there room for a misunderstanding, on one hand from the customer and the other the bank, about who is looking after whose interest?” he said. “When a customer is sitting down with the banker talking about a transaction to which, in many cases, the customer is deeply committed to and firmly persuaded is something [they] want to do, and if the customer does it, it will succeed?”
