Response to Fairfax’s Great Southern articles published 28 July 2018
Bendigo and Adelaide Bank has updated its response regarding its debt collection processes, predominantly during the 2015 and 2016 calendar years, for some Great Southern borrowers. To view our statement, visit https://www.bendigoadelaide.com.au/media_centre/
Bendigo and Adelaide Bank would like to comment on recent Fairfax media regarding Great Southern.
The Bank did not act in an aggressive or unethical manner in its dealings with Great Southern investors, and rejects any accusations of this nature in the strongest terms.
The Bank is not responsible for the inappropriate advice and fraudulent loans provided by some advisors. The Bank provided no financial advice to any investor or borrower that invested in the Great Southern schemes, and the loan application signed by the borrower recommended they obtain their own independent legal, accounting and taxation advice regarding both investment and borrowing.
Any complaints to Financial Ombudsman Service (FOS) against the Bank have not been founded by FOS and the Bank has an industry leading reputation for trust, customer advocacy and service. These achievements are only earned through a consistent approach to dealing with customers and any accusation to the contrary is difficult to reconcile with these facts.
There is no doubt the collapse of the Great Southern group of companies was unfortunate for all concerned, but in particular investors in Great Southern managed investment schemes. Macpherson Kelley commenced the class actions on behalf of investors in many schemes managed by Great Southern. The firm sought, among other things, to have loans made to investors declared void and unenforceable, they ultimately failed in proving the spurious claims against the Bank.
After the trial concluded, but prior to the judgement being handed down, the lead plaintiffs agreed to settle all class actions on terms approved by the Supreme Court of Victoria. Their willingness to settle reflected the weak case they pursued, best summed up by Justice Croft’s view; “there does not seem to be a clearer example of where a party has breached its overarching obligation to ensure that any claim that is brought before the Court has a proper basis...”
Great Southern played a significant role in delivering on the global forestry and plantation obligations of successive governments. The area of hardwood plantations managed by Great Southern increased tenfold to more than 240,000 hectares in the period from the release by Federal Government of the 2020 Vision, making a significant contribution to the Government’s target of trebling the area of commercial tree crops by 2020. To incentivise investors the tax treatment of agricultural-based managed investment schemes was particularly effective and often formed an integral part of their tax and cash flow management strategies. All investors have retained those tax benefits, including those borrowers who are yet to repay their loans.
Furthermore, we vehemently reject any suggestion we have not acted in accordance with community expectations. Our Bank has always strived to act with integrity, to act fairly and honestly, putting our customers and their communities first. This is central to our strategy, and to the ongoing success of every stakeholder in our business. We have always maintained our obligations and responsibilities to customers, shareholders and all stakeholders engaged with our Bank. In collecting the amounts rightfully owing to the Bank, we have acted respectfully towards Great Southern borrowers, in accordance with the law and consistent with community standards and expectations.
To provide full transparency, we would like to share the complete responses to questions asked;
1. How many investors owed Bendigo money at the time of the collapse, and how much did they owe?
There were approximately 8,200 borrowers when Great Southern collapsed in May 2009. Eight months later, about 6,500 borrowers owed $508.2 million.
2. How many people still owe money to Bendigo in relation to Great Southern investments, and what is the total outstanding?
1,033 borrowers owed $86.1 million at 31 December 2017. The vast majority of borrowers have made arrangements to repay the Bank following the Supreme Court of Victoria approving the settlement deed, on 11 December 2014, which concluded the class action.
3. How many people has Bendigo made bankrupt over their Great Southern debts? How many have gone into voluntary bankruptcy?
We have not kept a running total on this, however given the high number of loans repaid and the number outstanding that are current, it is not a material number in the context of the total number of borrowers. Many factors influence a decision of a borrower to seek bankruptcy relief. Liability under a loan to invest in Great Southern is just one. Many borrowers experienced financial pressures during the GFC stemming from a combination of other investment and business reasons. Some utilised the time between the collapse of Great Southern and settlement of the class action to construct arrangements to avoid their obligations to creditors.
4. How many people have you settled with at a discount, and what were the reasons?
The Bank has an established process to consider applications for financial hardship that complies with industry best practice.
The policies and procedures applied to Great Southern borrowers conform with Bank-wide practices. Applications are considered based on a borrower’s current financial and personal circumstances.
Where it is demonstrated that a borrower is unable to repay a loan, repayments may be restructured or settled for an amount that reflects their current financial position and personal circumstances. A decision to accept an amount less than the full amount due is based on the specific circumstances of each borrower.
5. How many have paid in full?
The vast majority of borrowers have either made repayments in accordance with their original terms, restructured their payment arrangements in order to meet their obligation or repaid their loan in full.
More than 87 percent of borrowers had resolved their position with the Bank as at 31 December 2017, with the balance outstanding reduced to $86.1 million from $508.2 million in the eight-and-a-half-year period from May 2009 to December 2017.
The fact that such a significant majority have met their obligation under the loan documents provides overwhelming evidence that borrowers understand the risk they took in investing and the obligation they had to repay the funds they were lent to invest. Whilst there was a hiatus in repayment through the period of the class action - a tactic that was recommended by the law firm promoting the class action (against the interests of borrowers in our view, as compounding interest has a material impact by growing the unpaid amount owing) – post the settlement repayments began to be made.
6. Is it true that you have recently ramped up your efforts to recoup the money, including through serving people with statements of claim, seeking default judgements and bankrupting people? Why have you stepped up this activity?
No, the Bank has not ramped up its efforts or stepped up its activity.
Around 87 percent of borrowers have resolved their position with the Bank. The Bank was constrained from engaging with borrowers prior to the settlement of the class actions. Our process has been consistent since that time.
Unsurprisingly, given it is approaching four years since the Court approved settlement that saw borrowers having to repay, the Bank has had to exercise its legal rights as many of the remaining borrowers have been unwilling to engage constructively with the Bank or have sought to challenge their obligation to repay their loan through various channels, none of which have proven successful. More than three years is a very reasonable period of time to wait prior to taking legal action to enforce a Court approved settlement.
It’s important to restate there were no allegations of wrong doing made against Bendigo and Adelaide Bank as the lender, however borrowers elected to include the Bank as a defendant to the proceedings. Key terms of the settlement were that borrowers acknowledged their loan deeds were valid and enforceable and that they were obliged to repay their loans.
Our rejection of this claim is further evidenced by the fact our employee resources dedicated to working directly with Great Southern borrowers have reduced considerably.
7. Your behaviour in chasing these loans has been labelled aggressive, hard-nosed and merciless. Justice Croft called for compassion and understanding in relation to Great Southern investors. Do you have a response?
Again, the Bank has allowed a significant period of time for people to comply with a Court approved settlement that was agreed to conclude the class actions they took against the Bank and others. It should be unremarkable that, after such a long period of time and failing in all non-legal attempts, the Bank chooses to use the legal system to recover what the Court has decided the Bank is entitled to.
The Bank has always sought to actively work with borrowers to establish arrangements to meet their obligations under their loans. Where borrowers do not constructively engage with the Bank and continue to ignore their obligations under the loans, the Bank may commence legal proceedings against them and many of those legal actions are being decided by Justice Croft. The comments you quote from Justice Croft asking for compassion and understanding were specifically in relation to the period immediately post the settlement of the class actions, as it was around Christmas in December 2014. The Bank supported this request by Justice Croft and agreed to a moratorium on collections until early February 2015. Importantly, this is consistent with the Bank’s normal practices where we would have delayed action regardless of Justice Croft’s request.
We appreciate these circumstances are frustrating and difficult for some remaining borrowers, however we have provided reasonable opportunity to work with us to find ways to repay their loan.
8. In February 2009 Bendigo obtained a book of Great Southern loans. A July 2006 ASX statement says the value of the loan book was approx $550 million. How much did Bendigo buy the debt for ie how many cents in the dollar? At the time, you denied reports it was 38c in the dollar. Some have since estimated it was 55c. Can you give us a precise figure or we will estimate it at 55c, which seems the general consensus?
The Bank has stated clearly on numerous occasions that all loans made or acquired by the Bank or any related party, at any time, were fully funded or acquired for 100 cents in the dollar. This was verified by Justice Croft in the class action hearing and any commentary to the contrary would be deceptive and misleading given Justice Croft’s published comments on this matter. Here is the relevant paragraph from Justice Croft’s Reasons for Judgement in the class action:
- Justice Croft stated:
The voiding orders sought by the Plaintiffs against GSF would cause substantial injustice to the BEN Parties, who paid full value for the assignment of the Loan Deeds relating to the Purchased Loans and had no knowledge of:
(a) the alleged wrongdoing of GSMAL; and
(b) the alleged involvement of GSF in that wrongdoing. [Reasons, para 2003]
9. How much of that $550 million has Bendigo recouped? How much of that is interest payments?
See question 2. Almost all of the amount outstanding at the date Great Southern collapsed was principal as borrowers were making the required payments on their loans up to that date.
Many borrowers ceased making payments when class actions were proposed in mid-2009. As such, interest has continued to accrue and compound since that date. For borrowers who have not made payments over that period, interest represents a large amount of what is now due on their loans. As responsible lenders, we wrote to borrowers on numerous occasions to inform them of the implications of compound interest should they elect to cease making payments. Unfortunately, borrowers who took the advice of Macpherson Kelley to cease making repayments are now in a far worse position than they would have been if they had taken the Bank’s advice to continue their payments.
Obviously, the Bank had to make payments of interest to the depositors who provided the money that was advanced to the Great Southern borrowers, so any suggestion that the interest on the loans is somehow unearned by the Bank is ludicrous.
10. A parliamentary inquiry in March 2016 recommended Bendigo set up a hardship program with an independent advocate for GS victims. Why haven’t you done that? Timbercorp has done so, what makes Bendigo different?
In 1996, the Bank set-up an internal department called Customer Help Centre (Customer Advocate), with the primary purpose of enabling our customers to have an established team within the Bank to deal with EDR matters. The Customer Help team all have a background in customer service and a minimum of three years internal dispute resolution experience prior to dealing with EDR cases. They are responsible for dealing with all aspects of EDR cases, including direct contact with the customer. They liaise with FOS, stakeholders and customer appointed representatives and we extended their scope to include Great Southern cases to meet the Senate Inquiry recommendation.
11. Has Bendigo set up any sort of hardship program, and if not will it?
For a range of reasons and from time to time, borrowers may experience difficulty meeting their financial obligations. The Bank is committed to helping customers who experience financial hardship. Our policies and procedures provide a consistent and sound framework to actively consider applications for financial hardship in accordance with legislative and regulatory requirements, the Code of Banking Practice and industry standards.
Accordingly, the Bank has considered many applications for financial hardship from borrowers that invested in Great Southern managed investment schemes. A range of options are considered to assist customers, where feasible, to establish arrangements to repay their loans. Every assessment is based on the personal circumstances and financial position of each applicant. Invariably, where sufficient information is provided to demonstrate a borrower is experiencing genuine financial hardship, the Bank will accept an arrangement that does not result in repayment of a loan in full.
12. Bendigo is charging interest of more than 10 per cent on loans associated with Great Southern. One politician described that as unAustralian because interest rates are much cheaper. Why didn’t Bendigo reduce the interest rate? Any comment that the bank is unAustralian? You waivered penalty interest on loans in the M+K class action. Was that waiver for the duration of the class action then reintroduced at some point?
All loans provided to Great Southern borrowers were fixed rate loans that had interest rates that were reflective of the time they were originated and they were hedged by the Bank for the term of each loan to eliminate the Bank’s interest rate risk. As part of the terms of settlement, the Bank agreed to waive penalty interest accrued and unpaid on loans to borrowers who were members of the class actions.
Penalty interest was applied after that date for borrowers who failed to make payments. The concession granted by the Bank was generous given Judge Croft’s description of the Bank as being an innocent third party.
In banking, interest is charged relative to the risk of a loan, and these loans were assessed as a higher risk than a housing loan, for example, and this has proven to be the case. This is the risk return that banks are expected to achieve by regulators and the market generally.
By way of comparison, industry standard personal loan rates currently range from 11-13%.
13. Some loans that you purchased were fraudulent. The loan book is described by some close to the collapse as "tainted". We have seen fraudulent loan applications. How can you still justify going after these loans when they were fraudulent? Bendigo merged with Adelaide Bank and at the time of the fraudulent loans Adelaide Bank was backing them.
Any loans where there is a suggestion of fraud are investigated by the Bank to try and ascertain the veracity of such a claim.
The reality is, it is very unlikely any loans are fraudulent as, firstly, taking out a loan was optional in making the MIS investment, secondly, borrowers received significant up-front tax deductions and thirdly, they were making repayments on their loans up until the time of the class action being launched.
Have you asked all those who are claiming their loans are fraudulent whether they claimed their tax deductions and, if they did, how can the loans be fraudulent? People simply cannot claim tax deductions that arise from fraudulent loans (how would they know what to claim) and nor do they make repayments on fraudulent loans.
Justice Croft sets out in his Reasons for Judgement a compelling case as to why very few of the loans would be fraudulent (or if they were the fraud was likely perpetrated by the borrower):
'… it is very clear from the evidence that the loan arrangements were optional for investors in the Great Southern managed investment schemes. They may have been conveniently accessible finance arrangements as offered, but there was no compulsion or pressure to take advantage of them. [Reasons, para 4128]; and,
Secondly, the loans are full recourse loans and the Plaintiffs willingly entered into the loans on those terms and acknowledged in writing in their applications for the term finance, among other things, that participation in agricultural activity involves inherent risks and there was no guarantee of any returns;
Thirdly, the plaintiffs and group members have benefited from the Loan Deeds, obtaining up front tax deductions and further tax deductions on interest and insurance payments. [Reasons, para 2004]
However, any borrower who believes they have been the subject of a fraudulent process should bring the matter to the attention of the Bank so it can be investigated and handed over to the Police where a fraud appears to be likely.
To be clear, a false loan application signed by borrowers is a fraud against the Bank by the borrower. Where signatures are forged, the fraud is perpetrated by the forger. In both examples the appropriate response from the Bank is to hand the matter over to the police.
14. We have seen multiple documents that indicate loan applications had inflated assets or had forged signatures. These loans were financed by Adelaide Bank. This is a breach of responsible lending. Does Adelaide Bank carry some responsibility for allowing these loans to be approved. Bendigo later merged with Adelaide, does Bendigo feel in any way complicit?
See question 13. The Bank approves loans based on the accuracy of the information provided at the time. We take our obligation as a lender very seriously, and if it comes to our attention that fraud has occurred in the submission of an application, we will report the matter to the police and the regulators.
15. In the past couple of weeks you bankrupted a single father with two children whose wife had recently died of breast cancer. He had offered over the years to pay back $140 a week on a loan he didn’t understand was full recourse. Bendigo wanted $250 a week and so it bankrupted him. Why is the bank playing hardball? Is this behaviour in line with community expectations, especially in light of the financial services Royal Commission?
The Bank cannot respond directly to matters relating to a particular borrower due to privacy reasons without the consent of the borrower. The Bank aligns the collection process with the National Consumer Credit Code and the Debt Collection Guidelines. It has in place a specialist area that processes financial difficulties. All borrowers have been advised on several occasions, over a number of years since 2009, to contact the Bank if they are experiencing financial difficulties. This process involves requests from the Bank to provide financial information for the Bank to assess the borrower’s ability to meet their commitments and repay their debt.
On receipt of this information, the Bank will assesses the client’s ability to repay the debt. As a consequence of the assessment, the Bank may write off the debt in full, reduce the debt and restructure the loan over a longer period or restructure the full loan over an extended period. In a number of cases, this will include a reduced interest rate to financially assist the borrowers in meeting their obligation to repay the debt. Unfortunately, and despite numerous requests, a number of borrowers have not returned the minimum required documentation in order for that assessment to be completed.
In cases where the borrower is unresponsive or continually ignores requests for information or repeatedly reneges on agreed repayment plans, it is difficult to meet the borrower’s expectations of what may be fair for obvious reasons. We believe the above borrower may have fallen into the second category, where a vacuum of information has made meeting expectations of the borrower difficult.
Seeking a sequestration order is always the last and least preferred option for the borrower, and ultimately, all stakeholders connected with our Bank. This decision will often come after many years of consultation.
The Bank suggests you investigate with the borrower the complete actions undertaken by the Bank in order to comprehend the history of the communications and the attempts by the Bank to resolve this matter in order to ascertain a balanced view of the matter.
In respect of your question on community expectations, in general it is clearly an expectation of the community that they will have a secure and stable financial system. For that to occur, banks, who intermediate between depositors and borrowers in the community, must collect the money that has been lent out, as it is depositors that have provided those funds. The community expects people to live up to their responsibilities to repay loans as without that banks, and ultimately the economy, would fail.
We are confident we have acted fairly and reasonably towards borrowers in a consistent and ethical manner.
16. Do you have any comment on the recent Michael Howard judgements before the NSW District Court and your unsuccessful appeal in the NSW Supreme Court? Does this undermine your argument that you are entitled to pursue the debts even if the loans were fraudulent or records deficient?
This was an isolated case. As a result of the settlement in the class action, group members acknowledged the validity and enforceability of their loans and accordingly, group members are not entitled to raise individual defences relating to their loans. Mr Howard was not a member of the class action and accordingly, the relevant judgements in his case are not applicable to group members. In addition to this, certain factual matters relevant to Mr Howard’s borrowing are unique to his circumstances alone.
17. There are reports that, following the Howard judgement, you are more willing to negotiate and/or settle with people who were not part of the class action. Is this true?
No, we have not changed our approach. Our process has been consistent since proceedings began, whereby borrowers have either repaid in full, entered in arrangements specific to their personal circumstances or have gone into financial hardship arrangements. The Bank exercised its legal rights where borrowers were unwilling to engage constructively with the Bank or sought to challenge their obligation to repay their loan.
18. Were there deficiencies in Great Southern's record keeping in relation to loans?
We are confident there were no systemic issues in Great Southern’s record keeping in relation to these loans.
19. Do you have any comment on the recent Dimitrov judgement in the NSW District Court, in particular where the judge accepted that Bendigo had sought to close off Dimitrov's opportunity to have his case re-opened by FOS?
This case has been to the High Court and it was found in our favour. FOS has processed a substantial number of cases and has found no major issues with the Bank’s collection and management of the applications for financial difficulty processes. We currently only have a small number of cases open.
In a separate matter in the NSW District Court, the Bank is seeking judgement against the borrower.
20. Dave Gilham is another investor in Great Southern who has offered to pay the principal back but Bendigo has refused and threatened legal action. Gilham has made the bank aware of his personal circumstances but the bank refuses to come to an agreement. Any comment?
The Bank cannot respond directly to matters relating to a particular borrower due to privacy reasons without the consent of the borrower. However, borrowers have a legal obligation to repay the full amount due under a loan which includes both principal and interest. The Bank has an established process in place to consider applications for financial hardship. There is no basis for the Bank to accept less than the full amount due on a loan unless the current financial and personal circumstances specific to a borrower suggest otherwise.
21. Does Bendigo Bank's behaviour meet community expectations?
Our Bank has always strived to act with integrity, to act fairly and honestly, putting our customers and their communities first. This is central to our strategy, and to the ongoing success of every stakeholder in our business.
We are Australia’s third most trusted brand amongst all companies and, for more than a decade, our customers have consistently rated us highly for satisfaction according to Roy Morgan.
In our 160-year history, our business has grown to service 1.6 million customers. We recognise from time to time some customers may experience financial difficulty due to circumstances beyond their control. We always strive to achieve an outcome that resolves such matters to the best of our ability.
We will continue to act honestly and fairly, and do the right thing by our customers and their communities.
We have always maintained our obligations and responsibilities to customers, shareholders and all stakeholders engaged with our Bank. In collecting the amounts rightfully owing to the Bank, we have acted respectfully towards Great Southern borrowers, in accordance with the law and consistent with community standards and expectations.
22. The Bendigo board has been subject to criticism over the length of tenure of the chairman. Is this something the board is reviewing?
The Bank publicly disclosed some time ago that Robert Johanson will step down as Chairman of the Bank in 2019.
Following our response to Fairfax on Thursday 26 July, the Bank then received two additional questions, which we responded to on Friday 27 July;
- We have cited loan documents not seen by investors until after GS collapsed that show their assets had been artificially inflated and liabilities understated. We are not saying they didn't know about the loans, they clearly did, and claimed tax deductions. What we are saying is they were inappropriate in some cases because they were granted loans on the basis of incorrect information provided by advisers/accountants. Any comment?
With respect to the first part of your enquiry, we have already provided a response on this matter. Specifically:
With regard to cases of inappropriate advice and fraudulent loans by advisors, they are matters that should be addressed with those advisors directly. The Bank provided no financial advice to any investor or borrower that invested in the schemes. Relevantly, the loan application signed by the borrower recommended that they obtain their own independent legal, accounting and taxation advice, regarding both the decision to invest in a scheme and to borrow funds to make that investment. It was also open to the Bank to accept that all the information provided was true and correct.
Any loans where there is a suggestion of fraud are investigated by the Bank to try and ascertain the veracity of such a claim.
Have you asked all those who are claiming their loans are fraudulent whether they claimed their tax deductions - and, if they did, how can the loans be fraudulent?
People simply cannot claim tax deductions that arise from fraudulent loans (how would they know what to claim) and nor do they make repayments on fraudulent loans.
Justice Croft sets out in his Reasons for Judgement:
'… it is very clear from the evidence that the loan arrangements were optional for investors in the Great Southern managed investment schemes. They may have been conveniently accessible finance arrangements as offered, but there was no compulsion or pressure to take advantage of them. [Reasons, para 4128]; and,
Secondly, the loans are full recourse loans and the Plaintiffs willingly entered into the loans on those terms and acknowledged in writing in their applications for the term finance, among other things, that participation in agricultural activity involves inherent risks and there was no guarantee of any returns;
Thirdly, the plaintiffs and group members have benefited from the Loan Deeds, obtaining up front tax deductions and further tax deductions on interest and insurance payments. [Reasons, para 2004]
However, any borrower who believes they have been the subject of a fraudulent process should bring the matter to the attention of the Bank so it can be investigated and handed over to the Police where a fraud appears to be likely.
- Can you please answer the question about how much interest and penalties you have collected from Great Southern borrowers since its collapse?
If by asking this question you are seeking to infer that the Bank is profiteering by charging interest on the Great Southern loans, please note that the margin on the Great Southern loans was fixed upfront. The Bank entered into swap arrangements to eliminate the interest rate risk. As a result, the Bank’s margin did not change notwithstanding the subsequent movements in interest rates.
Many borrowers elected to cease making payments on the loans shortly after Great Southern collapsed, and in many cases, on the advice of their solicitors. The Bank, on many occasions, advised borrowers that interest would continue to accrue on their loans and the effect of compounding interest. The borrowers elected not to follow this advice.
For these reasons, it is not relevant to provide the amount of interest collected on the loans.
Following our second response to Fairfax on Friday 27 July, the Bank then received third enquiry relating to a specific customer, which we responded to on Friday 27 July;
- We have a case Tristan Chapman who put himself into bankruptcy in 2015. He had heart surgery in 2017 and received a payout from his insurance. That was seized by the bankruptcy trustee. Would you like to comment on this? Chapman is critical of the bank saying he doesn't think it is acting like a "community bank" taking life insurance payouts even though he is in bankruptcy.
Mr Chapman voluntarily filed for bankruptcy in 2015 and was discharged from bankruptcy on 22 July 2018.
The bankruptcy was overseen by a registered trustee, and the Bank was one of several creditors.
The Bank does not know anything about Mr Chapman’s insurance payout, nor his heart surgery.
