The Australian Banking Association (ABA) welcomed the federal government’s commitment to creating a national register of power of attorney orders, as well as standardising such orders, saying that it is “a significant step in tackling the issue of elder financial abuse”.
However, the banking industry body noted that more action needs to be taken to “better equip local bank staff to detect and report elder financial abuse”.
“Local bank branch staff are on the frontline when it comes to detecting and reporting elder financial abuse, but currently their hands can be tied,” ABA CEO Anna Bligh said.
The CEO also marked the importance of establishing a “designated body” in every state where financial abuse of elderly Australians can be reported. She pointed out that the culprits of elder financial abuse are “often family and friends” making reporting to the police a hard decision.
“Financial abuse is a serious and far-reaching problem that can happen to anyone, but some people, like the elderly people with a disability or other vulnerable and isolated people, are at greater risk,” Ms Bligh said.
“Increased house prices and reasonable superannuation balances can mean that some older people are in a good financial position. For some adult children, this leads to what some refer to as inheritance impatience.”
Ms Bligh said that the ABA would continue to push the government for further action.
Royal commission highlights elder financial abuse
The banking royal commission hearings this year have shone a spotlight on how devastating the consequences can be when aspiring business owners are reliant on banks for funding, especially when elderly Australians are used as guarantors.
An example of this was highlighted in the third round of royal commission hearings: Commissioner Kenneth Hayne heard from blind pensioner Carolyn Flanagan, who sought legal advice after being informed by Westpac that her home would be sold to recoup losses incurred by the bank after her daughter and her partner (whose identities were suppressed) failed to repay a business loan that Ms Flanagan signed on to as a guarantor, with her home being used as security.
It was revealed that the lending manager filled out parts of Ms Flanagan’s guarantee, including an acknowledgement that she had been given legal advice, which the pensioner testified that she was not advised to do, despite rules stipulating that would-be guarantors be recommended to seek independent legal advice prior to signing an agreement.
The loan eventually fell into arrears and Westpac came knocking to repossess Ms Flanagan’s home, which was used as security.
Despite Ms Flanagan’s visibly frail state and inability to read, Westpac’s general manager of commercial banking, Alastair Welsh, said that, “technically”, there was no reason for the bank to dismiss a pensioner’s agreement to guarantee a loan, explaining that the duty of the bank’s lending managers is simply to ensure an asset is capable of covering the loan and that the guarantor is informed of the liabilities they are potentially exposed to.
The financial or physical health of the guarantor, or the position they would be in should the guarantee be called upon, do not come into consideration in the process, Mr Welsh added.
In another hearing, a representative from the Financial Ombudsman Service (FOS), Philip Field, admitted that he was “wrong” when he ruled that a widow should pay her deceased husband’s business loans within 12 to 18 months.
The royal commission learnt that Suncorp chased widow Jennifer Low for the repayment of the last of her deceased husband’s business loans worth $226,000 within six months.
When Ms Low contacted the FOS to intervene in the matter, the service found that the bank should not have approved the loan in the first place, and subsequently ruled that no interest should be paid on it.
However, when the widow proposed to pay off the outstanding amount of $226,000 over the loan’s 17-year term, with monthly payments of $1,111, which was higher than the established repayments, the FOS declined her proposal. It found that it would be reasonable for Ms Low to repay the loan without interest within 12 to 18 months or a maximum of five years.
On the stand, Mr Field, FOS’ lead ombudsman for banking and finance, said that the reason for his ruling was that he didn’t want Ms Low to still be paying off her debts in her 80s. He admitted his regret for the decision.
[Related: ABA updates Code of Banking Practice]
Tas Bindi is the features editor on the mortgage titles and writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.