Ombudsman to review questionable small business lending practices by Aussie banks

The banks’ treatment of small businesses will be “forensically examined” by the Small Business and Family Enterprise Ombudsman to weed out questionable lending practices.

The federal government has given Kate Carnell the task of looking into cases raised by the Parliamentary Joint Committee on Corporations and Financial Services to determine whether government reforms have done enough to protect small businesses from unfair treatment by Australia’s banking system.

“We will be able to require banks to turn up to the inquiry and require them to answer questions,” Carnell told SmartCompany.

“The sorts of cases we’ve got on our books at the moment are those where the bank has changed a rule around a loan, halfway through a loan,” she says.

Australian banks are enthusiastic promoters of small businesses in their marketing material but Carnell believes the move towards technology and away from people has amplified problems with banks changing the goal posts when it comes to loan repayments from business owners.

“The demise of the bank manager has been the biggest change I’ve seen in the space, and the move to treat people as numbers,” she says.

“It means the bank decides to change things mid-way based on their own appetite for risk, instead of having business owners sit down with a manager to discuss challenges.”

Suburban bank branch closures have also picked up pace throughout 2016. As Fairfax reported last week, there was a 5% fall in the number of bank branches open in the year to June 2016 – the biggest drop since 2011.

The Small Business and Family Enterprise Ombudsman will have the power to hold hearings and compel banks to provide documentation on the issues raised in the parliamentary joint committee to determine if enough is being done to protect smaller operations from unsavoury loan practices.

Carnell says the review will provide direct and timely assistance to the small business community in a way that a Royal Commission into the banking system cannot.

“The dilemma with a Royal Commission is that they take forever and the government then needs time to respond,” she says.

“Small business don’t have five years to wait, they have five minutes.”

The review forms part of the government’s wider inquiry into the financial system’s external dispute resolution and complaints framework, which is being chaired by Professor Ian Ramsay.

Small Business Minister Michael McCormack said in a statement Carnell will provide interim findings to the Ramsay Review, which is due to provide a final report to the government in 12 weeks.