the adviser logo

Non-major’s irresponsible lending revealed by RC

by Reporter10 minute read
Magnifying glass, lending revealed

In a statement provided to the financial services royal commission, a bank has conceded that it breached its responsible lending obligations, despite initially contesting the allegations in a legal battle with the Financial Ombudsman Service.

Fronting the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on Thursday (24 May), Bank of Queensland’s (BOQ) general manager of business banking and agribusiness, Douglas Snell, faced questioning regarding the lender’s response to “maladministration” identified in its approval of a loan to a small business customer.

The commission heard that in October 2012, a BOQ branch manager approved a $280,000 loan for Adelaide school teacher Suzanne Riches and her husband, with the loan not meeting the bank’s serviceability requirements.

In a statement provided to the commission, BOQ admitted that the loan breached responsible lending obligations.


“From the outset, BOQ accepts that there was maladministration in the serviceability and capacity assessment performed by BOQ and breach of BOQ’s obligation to lend responsibly in the origination of the loan.”

Ms Riches and her husband, who used the loan to open a Wendy’s franchise, would later fail to meet monthly loan repayments after they almost doubled from $4,420 to $8,696, forcing the business to enter into liquidation. The couple would later file a complaint with the Financial Services Ombudsman (FOS).

Counsel assisting the commission Michael Hodge questioned Mr Snell over BOQ’s decision to contest allegations of irresponsible lending, delaying the remuneration of the customer.

Mr Hodge made reference to a letter from BOQ addressed to FOS, which brought into question allegations of maladministration, despite internal communications from the bank indicating that it acknowledged such breaches.

Mr Hodge noted: “In this letter [addressed to FOS], they are clearly taking the position that there is some question about whether there is maladministration in the loan?”

Mr Snell said in response: “It doesn’t say the bank doesnt accept theres maladministration; its stating FOS finds theres maladministration. But we had said that there was maladministration.”

Mr Hodge continued: “No, you said internally that there was maladministration?”

Mr Snell conceded: “Sorry, yes.”

Mr Hodge then pointed Mr Snell to a statement from BOQ in which the bank insisted that the application was “assessed” in line with policies.

Mr Hodge put it to Mr Snell: “What wasnt said by Bank of Queensland to FOS was but they were assessed incorrectly and there was maladministration in the loan. Do you agree with that?”

Mr Snell replied: “Yes.”

“Do you regard it as appropriate that Bank of Queensland took this approach in its correspondence with FOS?” the counsel continued.

Mr Snell admitted: “No.”

The third round of hearings began on Monday (21 May) and focuses on loans to small and medium-sized enterprises, with responsible lending and unfair contract terms coming under the spotlight.

The hearings will consider the conduct of several of the leading banks in respect of their dealings with small and medium enterprises, in particular in providing credit to businesses.

[Related: Opinion: The dangerous tragicomedy of the royal commission]

Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more