Westpac Bank made a claim against the house of an elderly pensioner with multiple debilitating health conditions after it had allowed her to become guarantor for her daughter’s loan, and her daughter’s business failed.
The pensioner was only allowed to stay in her home after New South Wales Legal Aid made a claim to the financial services ombudsman on her behalf and Westpac agreed to let her stay there until she died.
The banking royal commission heard the case on Monday as the commission’s third round of public hearings began. This round is focusing on small business lending practices.
Witness Carolyn Flanagan appeared on Monday via videolink because she was too ill to travel to Melbourne.
Flanagan has suffered multiple debilitating health conditions including nasopharyngeal cancer, depression, osteoporosis and pancreatitis. She is legally blind due to glaucoma and has trouble hearing.
The commission heard Flanagan visited a Westpac branch in 2010 with her daughter, because her daughter wanted a business loan and Flanagan agreed to be guarantor for the loan. She was receiving a disability support pension at the time. She signed the Westpac documents without receiving legal advice. A bank official had to show her where to sign the documents because she could not read them herself.
“I would have signed anything for my daughter, in hindsight,” Flanagan told the commission. I have to be honest about that. If you can’t help your children, who can you help?”
In 2012 Westpac brought a claim against Flanagan’s house, trying to force her to sell her home. She sought help from NSW Legal Aid, which made a claim to the financial services ombudsman on her behalf.
Eventually an arrangement was reached with Westpac that allowed her to stay in her house until she died. If she wants to sell her house before she dies, Westpac will take some of the funds from the sale.
Alastair Welsh, Westpac’s general manager for commercial banking, appeared as a witness after Flanagan.
He told the commission he had reviewed Flanagan’s file and believed the bank had followed the right processes in her case, and there was no problem with Westpac accepting a guarantee from her.
“My review of the file shows we followed the process that I would have wanted the banker to follow,” he said. “Technically there’s not a problem.”
However, Welsh acknowledged that when a request for hardship consideration was made by Flanagan, the request should have been looked at faster.
He said there was no problem with Westpac’s lending practices for assessing the suitability of guarantors.
He said Westpac staff were not expected to inquire into the health of potential guarantors, nor to engage directly with them.
The commission also saw the Commonwealth Bank secure a significant public relations victory.
Senior counsel assisting the commission Michael Hodge told the commission he had investigated claims CBA had deliberately defaulted loans of Bankwest customers after it bought Bankwest in late 2008, and he had found no evidence for the claims.
CBA has been dogged by claims for years that it was motivated to impair the loans of some Bankwest SME customers in 2009 and 2010 after it acquired the smaller bank from HBOS.
Former Bankwest customers have claimed CBA unnecessarily defaulted their loans for its own financial gain and their claims eventually led to a parliamentary inquiry in 2015. The inquiry failed to produce a unanimous view on the events.
Hodge told the commission he had investigated the “clawback ulterior motive theory” – the claim that CBA deliberately impaired Bankwest loans so it could “clawback” the amount of the impairment from HBOS under the price adjustment mechanism in the sale contract between CBA and HBOS – but he found no evidence for the theory.
“This ulterior motive theory is not supported by either the facts or the operation of the contractual mechanism,” Hodge said.