Banks, Parliamentary Committees and the little person

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Senate Committee members have no desire to discover how hundreds of BankWest customers could be forcibly defaulted in the twinking of an eye, as that would involve opening a Pandora’s Box that they would much rather keep firmly shut, says Associate Professor Evan Jones.

The Parliamentary Committee system is, in principle, an admirable institution. Formally, it is a leisurely vehicle for obtaining information on controversial issues to enhance the rationality of the policy process. Formally, it provides a check on the abuse of power within the corridors of power. Formally, it allows every Tom, Dick and Harriet to proffer opinions on the parlous state of the world.

But there is a significant slip between the cup and the lip. The processes that facilitate the abuse of power within the state apparatus also infiltrate the Parliamentary Committee system itself. That infiltration ensures that the information selected and its interpretation is perennially filtered through the imperatives of the reigning power structure.

A salutary instance is the experience of the small business constituency with Parliamentary Inquiries. Many Inquiries relate to small business (and family farmer) concerns — most typically through the Senate Economics Committee or the Joint Committee on Corporations and Financial Services. But the reason for the quantity is that few of the Inquiries get to the nub of the matter, so that the Reports leave lacunae that have to be mediated by subsequent Inquiries.

Occasionally, a report might make some substantive recommendations – e.g. The Effectiveness of the Trade Practices Act 1974 in Protecting Small Business, 2004, or Opportunity not opportunism; improving conduct in Australian franchising (the Ripoll Franchising report), 2008— but the then government will reject or ignore those strong recommendations.

The problem is that much of small business concerns relate to exploitation by corporate business — and corporate business has the best seats at the reigning power structure table.

The gold standard of small business-related reports is the House Industry Committee’s 1997 Finding a balance: towards fair trading in Australia. There was bipartisan support of small business concerns, the Committee gave small business supplicants confidentiality and a sympathetic hearing, and the Secretariat was well-informed on the issues.

But it’s been all downhill since then. The significant formal changes resulting from the report have been marginalised, or are atrophied. S51Ac was legislated into the Trade Practices Act (now s22 of the replacement Competition & Consumer Act) to curb business to business unconscionable conduct, but the latter remains rampant because of lax regulatory enforcement and judicial hostility. The mandatory franchising code of conduct has been emasculated. And the establishment of a Small Business Commissioner in the Australian Competition & Consumer Commission has quietly been dis-established.

Moreover, two great fields of Australian corporate ogredom – retail and banking – have become more oppressive and exploitative. The ACCC under chairman Graeme Samuel (2003-11) facilitated the further aggrandisement of the retail duopoly. As for banking, the ACCC has facilitated the gobbling up of the second tier by the Big 4 — and both the ACCC (1998-2002) and the Australian Securities and Investments Commission (2002-the present) have been missing in action regarding corrupt conduct by the Big 4 against its small business/farmer customers.

My submission to the late 2003 Senate Economics Committee Inquiry into the Trade Practices Act begins with the following:
The current Senate inquiry into small business should never have been necessary.  It is a reflection of the marginal successes or outright failures of past inquiries and reports, the subsequent systemic weakness of the regulatory apparatus, and the flawed intellectual culture that underpins the regulatory apparatus. 

Behind this hierarchy of failure … is a less seemly infrastructure – the power of the big business lobby, the utter prostitution of the legal fraternity (with some rugged exceptions) in its defense of its key income source, and the bipartisan cowardice of those who draw parliamentary salaries while presuming to represent the broader ‘public interest’.

Nothing has changed in the interim. And so we arrive at the present moment. The same Senate Economics Committee has an inquiry running, cutely titled ‘into the post-GFC banking sector’.

The pressure for the establishment of this inquiry came from aggrieved clients of BankWest (mostly smallish developers) who have been defaulted by the Commonwealth Bank, immediately after the CBA took over BankWest from its failing parent, HBOS, in late 2008. The number is rumoured to be over 900.

But here is the Terms of Reference:
An examination of recent developments in the banking sector arising out of the impact of the global financial crisis and subsequent events, including:
(a) the impact of international regulatory changes on the Australian banking sector, particularly including changes to  liquidity and capital holding requirements;
(b) the impact on relative shares of specific banking markets;
(c) the current cost of funds for lending purposes;
(d) the impact on borrowing and lending practices in the banking sector both during and since the global financial crisis;
(e) the need for further consideration of the state of the broader finance and banking
sector; and
(f) any other relevant matters.

There is no mention of the CBA mass defaults. As I claimed in my submission to the Inquiry:
The implicit emphasis … is the overall stability of the Australian banking sector. This focus is already entrenched as the dominant concern of the finance sector regulatory apparatus in Australia, and it has led to enhanced banking concentration, an unparalleled public (now secretive) subsidisation of the Big 4’s balance sheet, and a comprehensive indifference of the Big 4’s management to the service of the public interest. …

It is entirely on the cards that this Inquiry will become centred on Big 4 representations. They will dominate the select Committee hearings, with the banks dissembling as is their custom. Their representations will dominate the media reporting of the Inquiry. And what room is left in the hearings and in the media will be taken up by representations of the regulatory agencies, themselves a large part of the problem.

In this inevitable emphasis, BankWest/CBA victims will struggle to get a look in. … Ongoing and rampant incompetence, laxity and corruption in major bank practices (which underlie the BankWest issue) face the prospect of being ignored or shunted aside as per usual. The global financial crisis is not the cause of the BankWest cleanout of its customers. It is merely a pretext, an excuse. The real origins of the BankWest cleanout lie in a dimension of the Commonwealth Bank’s culture that has harboured corrupt practices, and which has become entrenched in the face of regulatory indifference.

A sketch of some milestones in the CBA’s attraction to corrupt practices can be found in the following recent stories on IA:




  • I have laid out this background in a submission to this current Senate Committee Inquiry, but the submission has been held in camera because of its ‘adverse reflections and serious accusations’. This decision highlights a dilemma for the Inquiry process. Submissions published on the Committee’s website are given parliamentary privilege, so the rules attempt (reasonably) to prevent abuse of that privilege by those using submissions to defame others.

    I have made many submissions to Parliamentary Inquiries, and the last to be published online was in 2007; the last six submissions have all been held in camera. More, the ‘adverse reflections and serious accusations’ contained therein have been subsequently ignored in the reports. There is a certain asymmetry here, in that the accusations within submissions are overwhelmingly against powerful corporations/individuals (and organisations in their pay) whose behavior has been responsible for the pressure to have the inquiries set up in the first place. The 2008 Ripoll (Joint Committee on Corporations and Financial Services) Franchising report notes (par.1.5):
    The focus of the committee's inquiry was on addressing broad structural, procedural and regulatory issues relating to franchise agreements in Australia, rather than on any particular franchising disputes. As such, the committee decided that it would not publish the details of individuals or corporations adversely commented on in submissions. Material deemed to have fallen within this category was deleted by the committee, and the amended version of submissions was made public on the inquiry webpage.

    So the guilty parties get off scot free for past sins — and even the ‘broad structural, procedural and regulatory issues’ tend to fall foul of the lobbying of representatives of the powerful parties (here, the Franchising Council of Australia). A humorous reflection of the zeal with which committee secretariats guard the reputations of the powerful is in the ‘amended version’ of my own submission to this inquiry (sub #126). There are more blackouts than a CPA member’s ASIO file during the height of the Cold War. But these days, dangerous submissions are withheld in toto.

    A year later, the same Committee (JCCFS) brought down the Storm Financial report – Inquiry into financial products and services in Australia. In spite of its 250 pages, the report is a step backwards from the Franchising report — and manages to let the banks (in particular the CBA) off the hook with a mild slap on the wrist.

    Fast forward to the current ‘post-GFC banking’ Inquiry.

    The BankWest victims’ stories roll in, ignoring the diversionary terms of reference. The detached reader might consult some of these submissions here — e.g., Laut (sub #28), Eriksson (#37), Neale (#54), Goldrick (#56), Anon (#64). Although the English is often less than ideal, and further clarification desirable, the thrust is clear. CBA/BankWest have fraudulently defaulted and foreclosed on a significant number of BankWest customers in the commercial property sector, with the assistance of allied ‘professions’ willing to corrupt their integrity in the banks’ interests, leaving the customer (and family) in a nightmare world.

    The technique is simple: force down the valuation on customer assets/projects; from the resulting unacceptable valuation to loan ratio, impose draconian penalty interest rates; default and foreclose the customer. Sometimes, there will be extra dimensions: endless delaying demands from the bank lender for progress reports, audits, ‘expert’ evaluations, etc., all at customer expense; delayed release of loan portions, contrary to agreement.

    Then there are the submissions to the Inquiry from another world, courtesy of the Terms of Reference. The Reserve Bank claims that pretty much everything is in decent working order. It notes, in passing, that commercial property lending is ‘more constrained’ than pre-GFC, all ‘understandable’, but declines to look under the bonnet. The Australian Prudential Regulation Authority chooses to respond only to Terms of Reference (a).

    Says APRA:
    ‘Capital is the cornerstone of an ADI’s financial strength’.

    Well, so also is competence and integrity, but APRA declines to look under the bonnet. Useful figures from both, but little else.

    The Australian Bankers’ Association notes the inherent cyclicality and riskiness of commercial property lending, mirroring RBA banalities. The Financial Ombudsman Service devotes its entire submission to outlining how brilliantly it deals with ‘financial difficulty disputes’ of retail customers. No mention of its incompetent and complicit stymieing of small business and small investor complaints about heinous treatment by financial providers/advisers.

    The Insolvency Practitioners Association (motto ‘building professional excellence’) outlines the sterling job that its members perform under trying circumstances — a model of integrity, purer than the driven snow. Yet the receiver sector is riddled with corruption, catering to bank demands of customers’ heads on plates while appropriating a considerable slice of the ill-gotten pie for themselves. The Senate Economics Committee (here we are again), under pressure, had an inquiry into said sector (‘Liquidators and Administrators’, 2010), offered up a minor player as token sacrificial lamb for crucifixion — and de facto gave the green light again for the major players in the sector to carry on with business as usual.

    So here, from a sample of submissions to the Inquiry, we have two worlds, two languages, two cultures. Both purportedly covering the same terrain, but utterly distinct. Hence the significance of the Terms of References which privileges one world over the other.

    Instructive then that submissions from two CBA/BankWest victims (subs #27 & #28) should be accompanied by responses that the Committee Secretariat has elicited. The inference is that victims are not particularly credible witnesses to their own fate — failed businesspeople seeking scapegoats. Yet, though victim #27 is in receivership, the receiver’s response does not offset the victim’s complaint regarding CBA/BankWest treatment. Victim #28’s submission suffers the indignity of an invited response from the valuer that helped default that customer. Says the valuer, ‘it was the GFC wot done it’, yet the response is so pallid that victim #28’s case, ironically, is strengthened.

    Has the Secretariat invited responses from CBA/BankWest victims to the fatuous submission from the IPA? Has the Secretariat invited responses from CBA/BankWest victims to the dissembling submissions from the CBA and BankWest? Hang on; these institutions at the eye of the storm haven’t made submissions. Or perhaps they have been put in late to minimise adverse reaction.

    The two banks also declined to appear on the ABC’s 4 Corners program on 9 April, ‘Happy Banking’, devoted to the BankWest defaults. The banks sent along, in their stead, receiver Mark Mentha, who ‘has little time for property developers in general’. Said Mentha:
    The formula is very, very simple. Act in good faith, do what you said you were going to do, be honest and use your best endeavours and the banks will give you the time, will work with you. …

    … every decision they make would be around what's best you know for the bank as a corporate citizen in the community in which they live. And you only have to walk around Perth to see, you know, Bankwest's name on every school football team or community football team or netball team or rowing team or the community fun runs. Now they're a really important fabric in a society and they're here to stay, and if you took them away it'd be a terrible loss to the community or to the football team or to the school, but property developers come and go.…

    Mark Mentha

    Well, one can see why the banks opted for Mentha as mouthpiece. The second paragraph mistakes the banks for PR machines, and we can agree that they are first rate in this domain. What the defaulted BankWest customers wanted was that CBA/BankWest perform as the public expects banks to perform — pretty much like the story Mentha describes in the first paragraph. Unfortunately, that story is a fairy tale. The CBA and BankWest did submit written responses to the ABC with respect to the program, but the replies are risible. The arrogance and the supreme confidence of the CBA (and BankWest under its protection) highlight that the bank sees itself as untouchable.

    Ironic, then, that early in June, BankWest lost a case in the Victorian Supreme Court in attempting to link a wife as guarantor to a business debt. Atypically, there are strong legal precedents in the arena of guarantor disability unconscionability, but BankWest’s slovenly practices have been exposed to the light at an opportune time.

    In my submission to the Inquiry, I conclude with the following:
    The outcome of BankWest’s victims’ struggle for justice against the now integrity-free elephant that is the Commonwealth Bank is of enormous significance to the prospects of a functioning financial system in Australia in the immediate future. This Inquiry constitutes a pivotal moment in that struggle. The 1991 Martin Inquiry and Report legitimised bank incompetence and corruption. Those in authority have head their collective head in the sand on the issue ever since.…

    An Inquiry that whitewashes the problem is far worse than no Inquiry at all. If this Inquiry lets the CBA off with another Storm Financial-type mild rebuke, the green light for lax practices and corruption will flash throughout the financial sector and the legal fraternity. We can expect a continuation of the endless cycle of scam-based destruction of customer wealth and small business sector functionality into the indefinite future.

    The CBA/BankWest victims’ accounts expose indirectly what extraordinary discretion that banks have in their ‘contractual’ dealings with small business clients. This saga merely provides a window into an asymmetric commercial relationship probably second to none in industrialised countries — a phenomenon I outlined (with zero effect) in a submission to the Senate Legal and Constitutional Affairs Committee for a 2009 inquiry into the judicial system. In short, for Senate Committee members to adequately understand how many hundreds of BankWest customers could be defaulted in the twinkling of an eye would involve opening a Pandora’s Box that they would prefer to keep firmly closed. Their own comfortable place in the political firmament would burst asunder. Is it possible that this membership, cognisant of its terrible responsibilities, could rise to the occasion?

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