'Bank is not the friend of small business': admits BoQ executive

Banks are not the friend of small business, a Bano of Queensland has admitted as he was grilled over mulitple mistake during the loan process for a Wendy's ice-cream franchisee.

The commission heard on Thursday of a litany of errors in the way the bank issued and administered the loan including contacting the franchisor, Wendy's, without its customer's permission.

Counsel assisting the commission, Michael Hodge, QC, put to Douglas Snell, general manager of product, performance and governance at Bank of Queensland, that the bank had overstepped the mark.

Suzanne Riches lost her two Wendy's ice-cream franchises.
Photo: Tracey Nearmy

“The danger is that the banker is taking on some role beyond being merely a banker, he is starting to act as an adviser or an assistant to the client,” Mr Hodge said. “Whatever the advertising campaigns may be, the bank is not the friend of the small business owner - it is there to provide a commercial transaction.”

“You are correct,” said Mr Snell. “There is a line and the relationship of adviser and banker are definitely separate.”

Between the conditional offer and the final loan offer, Bank of Queensland almost doubled the size of repayments for the loan and miscalculated the interest so that it soared from $4000 to $8000 a month.

Primary school teacher Suzanne Riches immediately defaulted on the loan and never made a repayment in full.

Bank of Queensland took possession of the franchise, releasing it back to Ms Riches to sell, and the company Ms Riches had set up to run the franchise ultimately went into liquidation.

The bank admitted to maladministration of the loan following an application by Ms Riches to the Financial Ombudsman Service.

Douglas Snell from Bank of Queensland appears at the Federal Court for the Royal Commission.
Photo: Eddie Jim

Bank run through franchises

The business loan was made by one of Bank of Queensland’s "owner/operator" bank managers who ran the branch in Pirie Street, Adelaide as a franchise. The commission heard the branch manager was terminated by Bank of Queensland in 2013 over separate issues after misappropriating $160,000 in customer funds from two customer accounts.

The commission explored Bank of Queensland's own franchise model. It heard owner/managers do not receive any salary from Bank of Queensland and only receive income based on commission.

Owner/managers were also responsible for staff wages in each branch.

They were eligible for a series of rewards including a BMW and travel vouchers.

The commission heard the branch manager had no authority to make the loan offer to Ms Riches and the original loan offer was made on a term longer than the term of the franchise lease, another breach of policy.

The commission heard at the time the loan was made, Bank of Queensland wanted to increase its business lending to "diversify exposures by geography and asset class”.

This resulted in a large increase in loan approvals with 3309 loans approved in 2012 - amounting to 78 per cent of applications - with an average value of $878,414. By 2017, despite only 1981 loan applications being made, 83 per cent were approved with an average value of $1,330,811.