The royal commission’s third round of hearings kicked off in Melbourne yesterday, with evidence heard of elder abuse, familial abuse and coercion involving banking professionals.
The commission heard from witness and former ASIC official Philip Khoury, who reviewed the Code of Banking Practice for the Australian Banking Association.
During his review, undertaken between December 2017 and April this year, Mr Khoury considered the protection of guarantors under the code and learnt of the significant risks associated with parents and family members guaranteeing business loans.
“What was the particular issue that was raised with you?” asked senior counsel assisting Michael Hodge QC.
“Really, guarantors offering up their guarantee without understanding the risks,” Mr Khoury said.
“In the extreme end, this could be a product of abuse, elder abuse, familial abuse. In fact, even the guidelines that the banks have put together for this alert bank staff to the possibility of coercion in obtaining guarantees for someone else’s loan. So, this was clearly an issue.”
Mr Khoury said that “it is very clear” that some people were wanting to help family members or associates and getting themselves into a “highly risky position” that they were not clear about because of their goodwill.
The commission will be taking the spotlight to loan guarantees as it continues to probe misconduct in the small business lending space.
The commission was told by a number of consumer advocacy bodies, including Legal Aid offices, of examples of the effect on family members of small business lending issues, particularly parents guaranteeing small business loans for their children using their homes as security.
“In such situations, there are questions to be asked about whether guarantors fully understand the risks associated with providing the guarantee once the business gets into financial difficulty,” Mr Hodge said.
Follow the small lending hearings live at IFA sister title My Business.
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