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.
Blame the daughter not the bank. You borrow money, guess what, it needs to be repaid or you lose your house.
Um, Amadio case anybody?
The banking sector is very corrupt in Australia and we’ve seen the consequences of their wild lending practices causing a severe housing bubble. The only solution will be a quick and swift restriction on lending until new regulatory measures are put in place and adhered too. It will be a painful blow to the economy but it is better to do it straight away and move forward rather than dragging it on for another decade.
I stubbed my toe while dropping my kid off at school. Surely the banks are to blame. After all they do the lending on the machine that poured the concrete that I stubbed my toe on. Where do I lodge a claim against these big bad banks?
Shouldn’t children take the bulk of the blame for putting their parent’s assets at risk by investing into a business that ultimately fails… nope lets blame the banks. Why we are at it lets blame them for lending us money to buy a car that we crashed but forgot to insure, or lending us money to buy a boat that we forget to put the plug in and it sinks.
In part, yes. But let’s remember who they learnt their financial habits from….. Parents who enable their children’s bad habits are just as much to blame. The banks also share responsibility to explain the risks or at least have a checklist to ensure appropriate advice and measures have been sought such as insurances, taxation advice etc etc.