Even when it admitted being in the wrong, the Bank of Queensland still fought against paying a small business customer compensation

Wendy’s Milk Bar/Facebook
  • The Royal Commission has heard that a Wendy’s Milk Bar franchisee was forced into a loan with the Bank of Queensland where the term-length was halved and interest repayments almost doubled.
  • The Wendy’s franchise was subsequently put into liquidation.
  • The BoQ branch that approved the loan had previously failed a risk audit and the branch manager was later fired.
  • Despite admitting wrongdoing, the Commission heard evidence that BoQ sought to minimize and delay repayments to the franchisee.

A Bank of Queensland branch manager who approved a $280,000 loan for a small business was later sacked by the bank for misappropriating client funds, the Royal Commission into misconduct in the financial services sector heard today.

The revelations came as the commission heard more evidence in the case of Suzanne Riches, who went to the bank seeking financial backing to become a Wendy’s franchisee.

A school teacher for more than 40 years, Riches says she was left in a “no-win situation” when the BoQ, following initial negotiations, almost doubled the loan’s interest rate and reduced its repayment time by more than half after it was too late for her to pull out of the deal.

Riches and her husband bought a Wendy’s franchise with two outlets in Westfield Marion, south of Adelaide, in 2012. The loan was in her name.

However, the BoQ branch that issued the loan, an “owner/operator” franchise itself, was already under scrutiny by the bank for multiple problems. Its manager was subsequently fired for the misuse of around $150,000 in client funds.

BoQ’s head of governance, Douglas Snell, told the commission the misappropriation matter was related to Riches. The branch, on Pirie Street in Adelaide, closed. The former manager was referred to the police.

Snell told the commission the bank hasn’t been able to make contact with the former manager since then.

An audit in 2012 revealed the branch had poor credit risk procedures in place. A warning letter was subsequently sent, and another risk audit carried out in 2013 was deemed to be unsatisfactory.

The commission heard that multiple errors were made on the loan issued to Riches, including a miscalculation of living expenses and the loan interest rate. It was then found that issuing the loan was outside the branch’s scope of authority.

Snell told the commission there had been a failure on BoQ’s part in its treatment of Riches.

However, the bank made no offer to reimburse her, despite an internal review that revealed maladministration and a recommendation that it reduce the principal owed by $56,000, and reimburse interest and legal fees.

BoQ then argued with the Financial Ombudsman’s Service, which resulted in a nine-month delay to compensation recommended by the FOS.

Yesterday, the commission heard that Riches and her husband planned to invest the funds in a new business after he received a family inheritance in 2012.

The pair initially had a loan application rejected by Commonwealth Bank, which cited concerns about the short-term nature of the Westfield leases. One lease was set to expire in September 2013, the other in January 2015.

The couple’s lawyer also raised concerns about the lease terms, and said they should seek a guarantee from Westfield that the leases would be renewed upon expiration.

In addition, their accountant said bottom-line profits looked “skinny” and the business plan hadn’t taken into account salaries paid to the proprietors.

However, in discussions with the Wendy’s franchise manager and other Wendy’s franchisees, the pair were confident that they would be able to increase profits by 10% and run a successful business.

Their son-in-law then suggested that they contact BoQ, which was looking for customers and may be more likely to approve the loan. The pair then applied for a $280,000 loan from BoQ.

The commission heard that Riches had made an offer to buy the Wendy’s franchises before securing a loan.

There was subsequently a hold-up in the approval process and she missed the settlement deadline, which meant her husband had to pay a penalty to the vendor.

When the revised loan was eventually approved by BoQ, it was for a term of three years — down from seven on the initial contract. And the monthly repayments had almost doubled to $8696.89 from the initial amount of $4,400.

Under questioning from Michael Hodge QC, senior counsel assisting the commission, conceded that the Riches should have been able to rely on the conditional offer from the bank as negotiations to buy the business proceeded.

Riches said she accepted the loan because the cooling off period for the purchase of Wendy’s had already ended, which left her facing possible legal ramifications.

“I was in a no-win situation,” she said.

The higher repayments were difficult to meet and she went into immediate default on the loan and never made a full repayment. Riches refinanced through ANZ in March 2016, but ultimately her company ended up in liquidation.

Counsel assisting asked Snell why here was no review of the loan assessment process when Riches had gone straight into default.

“No one went to look at why it was made in first place, even though there had been an immediate default?” Hodge asked.

“No,” Snell replied.

Riches made a complaint to the Financial Ombudsman’s Service in July 2014.

But a series of emails tabled at the commission detailed how BoQ tried to minimise the compensation to Riches in a series of arguments that on occasion contradicted its own admissions of fault.

Hodge asked Snell whether he agreed that “this is not fair and reasonable behaviour by BOQ towards one of its customers?”

The BoQ banker replied: “My personal belief is the strategy was not fair and reasonable.”

In closing evidence, commissioner Kenneth Hayne asked Snell whether the bank’s promotional pitches on “putting customers first” had a “disconformity” with its actions with the FOS. The banker conceded BoQ didn’t act in the customer’s best interest.

The commissioner wonder whether there was “at least a possible misunderstanding by the customer of the role of the bank” a result of its marketing statements.

“Yes, there is definitely a deviation in what client expects and gets, at times,” Snell said.

The Riches case is the third presented to the commission this week involving allegations of questionable bank lending standards to fund franchises.

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