Aussie mum takes David-and-Goliath battle with Commonwealth Bank to parliamentary inquiry

The Commonwealth Bank has been accused of “predatory lending”. Picture: Ian Waldie.

But thanks to a bungle by the Commonwealth Bank of Australia, she’s lost what was supposed to be her retirement nest egg, and now the bank wants her house.

In a scathing submission to a parliamentary inquiry into banks’ lending practices, Ms Burge accuses CBA — which is due to give evidence in Canberra on Wednesday — of fudging her loan documents to sign her up for a business loan it knew she could never repay.

“It’s predatory banking at its worst,” Ms Burge told news.com.au, backing calls for a royal commission.

What happened reads as a cautionary tale for any small business owner thinking of taking out a loan with one of the big banks.

Ms Burge lost her marriage and her finances are in tatters.

Now she’s fighting a David-and-Goliath battle in the Tasmanian Supreme Court.

The bank has sold the property out from under her, and has started proceedings to sell all that’s left: the family home that she once owned unencumbered, and an investment property.

It all started in 2008, when Ms Burge and her then husband applied for a $300,000 loan to jazz up their Launceston craft store and add in a cafe.

The couple had bought the commercial property in 2002 to house the craft business Ms Burge had started in the family loungeroom, redrawing on their home loan to buy the property outright.

But while business had previously been booming, the global financial crisis combined with ill-timed council works out the front meant it started bleeding money.

Yet the bank determined that the couple could afford repayments of $7000 a month, and signed them up for a 15-year loan, secured against the property.

Suzi Burge has lost her the property where she ran her business after taking on an unaffordable loan.Source:News Limited

Ms Burge said she was initially led to believe that she would be eligible for an investment loan at a lower rate of interest, to be repaid over 30 years.

“That’s why we put the application in our names and not the business,” she said.

“But when they brought the documents around, they said it had to be over 15 years at a higher interest rate.”

She said that while “at that point we did have the choice not to sign it”, the couple took an optimistic view and figured that if the bank thought the loan was right for them, they could make it work.

Ms Burge hoped, optimistically, improving the property and adding a cafe income stream could help turn her financial situation around.

“We’d already gone so far with the planning and the application fees,” Ms Burge said.

“We looked at each other and asked ‘can we do it?’”

Unfortunately, they couldn’t, and the bank foreclosed on the commercial building — which passed in at auction and finally sold for $400,000, almost 40 per cent below the bank’s previous valuation.

This cleared the loan for the renovations but it left Ms Burge without premises to run her business, and a big debt for the property that was sold out from under her.

Now the bank has taken possession of her investment property, along with the stock in trade of her craft business, which she had stashed inside.

And Ms Burge is waiting for the knock on the door of the home she raised her family in, as the bank is about to take possession of that, too.

It’s a pertinent illustration of what can happen when banks lend people money beyond their capacity to repay — and why we have responsible lending guidelines enshrined in our banking codes of practice.

OMBUDSMAN FINDS ‘MALADMINISTRATION’

The Ombudsman determined the bank should not have lent Ms Burge and her ex-husband the money, and that CBA had “engaged in maladministration in lending”, by failing to adhere to best practice, overstating the business income, understating the couple’s living expenses and wrongly factoring in Ms Burge’s ex-husband’s full income despite the fact he was on probation.

Maladministration means conduct that is contrary to law or unreasonable, unjust, oppressive, improperly discriminatory or based on improper motives.

The Ombudsman ordered the bank to deduct $144,000 from the debt as compensation, but this still left Ms Burge with a six-figure debt she has no hope of paying.

Internal CBA emails seen by news.com.au reveal concerns were raised by the bank’s assessors about the couple’s ability to repay the business loan.

“I need to get some clarification around this paper prior to being able to decision this application,” one of the bank’s risk associates wrote.

“The company balance sheet reflects an extremely poor position with major deficit (retained losses) … In comparison to past performances, the projected income seems optimistic. Please comment.”

The risk associate also wrote that the loan application had merit “based on reasonably strong personal balance sheets of the director and guarantor”.

Ms Burge said these balance sheets had gone missing, and were not in the copies of her loan documents that the bank submitted to the Ombudsman.

“I certainly don’t think it responsible lending to write that we have plenty of ‘non sensitive assets’ that can be sold to reduce or clear the debt,” she said.

“I believe the documents show that CBA knew I was not going to be able to afford these loans, and yet went ahead loaning the money anyway, because they knew there were plenty of assets to sell.”

Ms Burge also argued the bank had failed to secure an appropriate price, having valued the building at $650,000 in 2010, but the Ombudsman found that CBA “did make all reasonable attempts to obtain the best available price for the property in the circumstances and at the time that the property was sold”.

“The value of the … property had dropped significantly at the time of the sale and market conditions were very soft,” the Ombudsman’s determination said.

The potential sale price of the property was also adversely affected by uncertainty over the council zoning of the property.”

COMMONWEALTH BANK DENIES WRONGDOING

A spokesman for CBA said it was not appropriate for the bank to comment on the circumstances of individual customers.

“Banks have no incentive to foreclose on loans — everyone loses under this scenario,” the spokesman said.

“The best outcome for the customer and the bank is when the loan is repaid in full, and that often means coming up with a plan that will give the customer every opportunity to ride out their difficulties. But, regrettably in some cases, these options simply won’t avert an inevitable fact if there is no realistic way that the loan can be repaid.”

He said the bank welcomed scrutiny and had actively participated in all inquiries since 2008.

CBA is battling to salvage its reputation amid the controversy over its acquisition of BankWest, which led to its foreclosing on more than 182 commercial loans worth more than $8.2 billion.

A number of small business owners have accused the bank of deliberately impairing their loans by deflating the value of their assets, in order to take advantage of a discount clause in their contract to take over BankWest.

[Souce:- news.com.au]