Westpac fought disability pensioner Carolyn Flanagan's hardship plea

The royal commission has heard that Westpac attempted to evict an elderly disability pensioner, Carolyn Flanagan, from her home, as it tried to enforce security on a loan she had guaranteeed.

As the commission turns its attention to business lending, Ms Flanagan on Monday told the commission her daughter and partner had discussed her guaranteeing a business loan in 2010.

Carolyn Flanagan, who appeared before the royal commission on Monday.
Photo: Elke Meitzel

Ms Flanagan said she recalled be asked to be a "silent partner" in the business, and she recalled visiting a Westpac branch to sign loan documents in 2010.

Several years later, the bank would attempt to take security of her home - before it ultimately approved a hardship application that allows Ms Flanagan to remain in it under a "lifetime tenancy" agreement.

Ms Flanagan told the hearing she suffered from a range of medical conditions and was legally blind, and her memory of signing the loan documents was imperfect.

Counsel assisting, Michael Hodge, did not name Ms Flanagan’s daughter or her daughter’s partner, because Commissioner Kenneth Hayne had given a direction that they not be published.

Under questioning from Matthew Darke, representing Westpac, Ms Flanagan said she understood the bank would be able to sell her house when she agreed to be guarantor, and that she had been told by her daughter the loan would be repaid.

“I remember that, otherwise I wouldn’t have put my house up,” Ms Flanagan said, who gave evidence via video link from Sydney, as she had been advised by her doctor she was not well enough to fly to Melbourne for the hearing.

Mr Hodge put it to Ms Flanagan that in 2012 Westpac contacted her and started to take legal action over the guarantee, but she said did not remember the detail. Under questioning from Mr Darke, she agreed that her memory of it was “very poor.”

Appearing after Ms Flanagan, Legal Aid NSW senior solicitor Dana Beiglari told the hearing she met with Ms Flanagan in 2014. Ms Beiglari said Ms Flanagan had a range of health conditions, wasn’t able to read or write, had restricted movement and had difficulty seeing.

Ms Beiglari advised Ms Flanagan advised to apply to the Financial Ombudsman Service (FOS) on the grounds of “financial hardship,” with the goal of Ms Flanagan being able to stay in her home until she died or sold the property. Westpac initially fought this outcome, she said.

“Westpac’s position, which was communicated to me from FOS, was that it would not be a possible resolution to the dispute,” Ms Beiglari said.

After the FOS process, Ms Beiglari's manager escalated the matter through a consumer advocacy contact, who raised the issue with other parts of Westpac, to prevent Ms Flanagan facing homelessness in her old age.

Within a couple of days, the bank agreed to settle so that Ms Flanagan could remain in her home until she died or sold the property, Ms Beiglari said.

Westpac executive Alistair Welsh told the hearing the bank should have handled the request better by approving Ms Flanagan's hardship application earlier. However, he said that "technically," there had not been a problem with the process the bank had followed in obtaining the guarantee from Ms Flanagan.

Ms Flanagan was appearing as the commission turns its attention to small business lending, in particular banks' responsible lending practices and their approach to enforcement.

Earlier, the hearing explored the banking industry's code of practice, with Mr Hodge questioning Phil Khoury, who conducted an review of the industry's code of conduct.

The code included a mandatory three day cooling off period for guarantors who were not receiving legal advice, and a commitment for guarantors to be told if the borrower is in financial trouble.

Mr Khoury said banks had not picked up his recommendation that the code explicitly say that if guarantor provisions were not adhered to, the guarantee would not longer apply. Mr Khoury said the Financial Ombudsman Service had argued that there needed to be "very serious" consequences for banks to follow guarantor provisions "religiously."

Mr Khoury said banks were opposed to this because it could be "gamed" by some customers and would be "unfair" in some circumstances.

"That was the main one [provision] that doidn't appear in the code."