Kate Carnell the Australian Small Business and Family Enterprise Ombudsman talks about a possible bank levy, and will it go to those who have been wronged by banks?
Kate Carnell – Bank Levy
Ross Greenwood: Let’s go to another aspect of the federal budget tonight, and this rumour about a new tax on the banks. Now, this is going to be an important thing as to what happens to this money, some of it as we’ve heard, could go to the National Disability Insurance Scheme. But there’s another aspect just now we got Kate Carnell, the Australian Small Business and Family Ombudsman, thanks for joining us in our Parliament house studios guide. What’s your mile? Is it that maybe, it’s going to help to compensate back bank victims?
Kate Carnell: Look, I’m certainly hopeful that’s the case. On my end, that is the mile, and so it should — taxpayers shouldn’t fund fear compensation for those individuals and small businesses that have been hurt by the banks. They should fund it themselves, and there are a not insignificant number of people who have come out the worse from their encounters with our banks.
Ross: All right. You would understand, however, that a lot of the political opponents of this government would have, would simply say that this is a way for the government to avert any call for a royal commission, that the banks will pay, that somebody such as yourself as the Ombudsman, will be the one doling out the cash and there’ll be higher, if you like, limits on people being able to get more money out of banks if they’re hard done by. These things would be welcomed by the community, but the question is whether it would actually help to avert the call for a royal commission?
Royal Commission into Banking?
Kate: Well, look, if we have a royal commission, it’s going to cost millions and millions of dollars. They always do, and they always go on for a long time. At the end of a royal commission, a royal commission will make recommendations to the government. So it will do nothing for two, three years.
This approach, along with some other changes which desperately need to happen, that give people access to justice when they end up on the wrong side of the banks, is exactly what a royal commission’s about. And you get to have it without two or three years in an extraordinary amount of taxpayer’s money being spent on a royal commission that itself can only come up with recommendations to do, maybe, exactly what we’re going to do now.
Ross: Because in any dispute with a bank, there is an imbalance of power, isn’t there? You’d have to be really, very big, and very stubborn to take on a bank.
Kate: Ross, we’d need an inquiry into small business loans, and I’ll tell you what, it’s not just a bit of an imbalance, it’s like zero and 100%. The small business people, individuals have no power, and the current banking contracts give all of the power to the banks. The current contracts allow banks to change any term or condition on a contract at any time they like, the amount they’re willing to lend to you at any time they like, the interest rates you’re going to pay at any time they like.
Now look, there’s a whole lot of things that the banks have realized they’ve got to change. They’ve agreed to a simplified contract, they’ve agreed to better timelines, they’ve agreed, at least to some extent, getting rid of some of the non-financial default clauses. But that doesn’t take away from the, I’d have to say, probably, thousands of people that have been badly dealt with.
Ross: And the very worst of those who are being badly done by are those people who continue to make their interest payments, they continue to have a business that is solvent until they very point that the bank decides that they’re going to withdraw the funding. And then all of a sudden, the business collapse, because they can’t organize alternative funding quickly enough to save their businesses, notwithstanding that they have never missed a payment.
Kate: That’s the point, these are the performing loan defaults are the ones that we looked at. People who have paid what they were supposed to pay every month, done the right thing, the bank decides they don’t want to find them anymore, it could be because they don’t like the particular industry that particular person’s in. They believe that the area of Australia that they’re in is due for a downturn, they’re still paying what they’re supposed to pay, the bank is not interested anymore. You’ve got 10 days to refinance. We even had case where they had two days to refinance. The moment you don’t refinance, your loan is in default, you go from maybe 7% to 19% interest rate, and the spiral goes downhill.
Ross: And there are examples of people who have been solvent, who have done the right thing, who have lost their business because of exactly that.
Kate: There are lots of cases. Now, it’s true that the banks have thousands and thousands, well, hundreds of thousands of loans. And we’re talking about, a thousand, maybe. You may be even a few more than that. But these are moms and dads who have lost their business, who have lost everything. They deserve to be compensated, and then, of course, we know about financial planning advice that wasn’t all that good and other issues where compensation should occur, and should be paid for by the banks, so if that goes — if this goes to achieve that, it gets a big fairness tick.
Ross: I’ll tell what, we’ll find out very, very shortly about all the detail of that potential scheme, but I’ll tell you what, I think we might have got a little bit of good mile there. Kate Carnell is the Australian Small Business and Family Ombudsman, and Kate, great to have you in our Parliament house studios this evening.
Kate: It’s a pleasure, Ross.