In a recent decision by the NSW Supreme Court, the issue of de-banking was considered. This is an issue that has been gathering momentum and festering for some time. De-banking is unpleasant and unsociable. With no bank account, you cannot exist, so finally, we have some case law.
Since 2016, we have had a number of clients de-banked (for one client, twice by different banks) or in some cases, two of which are current, financial institutions have simply refused to open a banking facility. In every instance, it’s all handled at Head Office level, the local branch staff cannot get any answer as to why the decision has been made and no reason is ever provided to the account-holder. All that’s ever cited is to refer to their Terms and Conditions. In every instance, our client has or had done absolutely nothing wrong.
Government action
The Senate has considered this issue and on 18 March 2021, as part of the Select Committee on Australia as a Technology and Financial Centre’s inquiry, it’s Final Report – https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Financial_Technology_and_Regulatory_Technology/AusTechFinCentre/Final_report – commented in some detail. Recommendation 10 states “The committee recommends that in order to increase certainty and transparency around de-banking, the Australian Government develop a clear process for businesses that have been de-banked. This should be anchored around the Australian Financial Complaints Authority which services licensed entities.”
Despite this recommendation, it’s done absolutely nothing. I’m aware of a recent referral to AFCA and it declined to assist.
Outrageous examples of de-banking
I was unaware of that inquiry and its report but wrote to the Chair of the Committee, the Hon. Adrain Bragg in January 2022 to inform him about the experiences of a few of our clients. This included:
* a client that was advised by registered letter received in its Post Office Box in Melbourne on 23 December 2021 that the bank would close its accounts as of 13 January 2022 when he was on holiday (and just about all of Australia too);
* another that had not only his business accounts closed but also had an investment and his home mortgage called up; and
* besides closing down two company accounts for another client, the bank also
- called up the mortgage of a staffmember, who wasn’t even a shareholder or director of the company, simply because she was a signatory to the account.
- The bank also advised the staffmember who had a joint credit card account that she could no longer use her credit card but her husband could; and
* in addition to closing his business account, it:
- closed his and his siblings’ Superannuation accounts,
- called up his and a sister’s mortgages,
- cancelled both his company and personal credit card accounts, causing severe financial strife; and even
- closed his grandchildrens’ savings accounts.
In August, I again wrote to Senator Bragg about a potential client that has tried to open an account with over 40 financial institutions to no avail simply because the product it wants to offer are Small Amount Credit Contract loans. As a result, he was unable to act on ASIC’s requirement of commencing lending within 6 months of obtaining his Australian Credit Licence.
Not just in Australia
This de-banking action doesn’t just occur here. In the UK, Nigel Farage was de-banked by the NatWest Bank over his political views. What’s emerged, though, is a much wider issue in that “just over 343,000 [accounts] were closed in 2021-22, up from just 45,000 in 2016-17.” (Reference 1). Some of these accounts had been held by individuals but the majority were for small businesses.
Inability to complain
I argued that the Australian Banking Ombudsman is as toothless tiger as is the Australian Financial Complaints Authority (“AFCA”). Neither want to override the banks’ ability to rely on their Terms and conditions. Equally regrettably, the Australian Consumer and Competition Commission (“ACCC”) equally hasn’t felt compelled to intervene and use its powers, either under the Unfair Contract Term provisions as applicable to small businesses or the Competition and Consumer Act 2010.
Whilst the Government has made responses to the recommendations created by the Senate inquiry, they do absolutely nothing towards providing tangible results for those that have been or will be affected. AUSTRAC’s guidance in relation to higher money laundering and/or terrorism financing (ML/TF) risk assessment is more constructive (see reference 2) for those affected. I argued to Senator Bragg that the Government must do more to seriously review this whole issue in the same manner as is to occur in the UK. The Hon Julie Collins, Federal Australian Small Business Minister, was copied in to the letter. No acknowledgment or response from either was received. Government action must therefore be regarded as low priority or even meaningless.
References –
- 1. Gutteridge, A, 2023. “Debanking inquiry under consideration by Treasury committee”, The Telegraph, 01 August 2023. Available online https://www.telegraph.co.uk/news/2023/08/01/farage-coutts-debanking-inquiry-by-treasury-committee/ viewed 2 August 2023.
- 2. AUSTRAC, 2023. “Financial services for customers that financial institutions assess to be higher risk” , 27 June 2023. Available online https://www.austrac.gov.au/business/core-guidance/financial-services-customers-financial-institutions-assess-be-higher-risk viewed 28 July 2023.
Court now intervenes
It is therefore most gratifying that the Courts have now intervened and we have a case history. The banks will not be pleased with the result.
Facts of the case
In Human Appeal International Australia (“HAI”) v Beyond Bank Australia Ltd (No 2) (“BBA”) [2023] NSWSC 1161 (27 September 2023) – https://www.austlii.edu.au/cgi-bin/sign.cgi/au/cases/nsw/NSWSC/2023/1161 – this issue goes back 2 years. In September 2021, HAI commenced proceedings in the Equity Divisions duty list against BBA. At that time, BBA gave notice to HAI that it was closing their bank account in 20 days. At that time and in keeping with our experience, BBA merely referred to its Terms and Conditions. It refused to provide any reason, constructive or otherwise, why the account needed closure. HAI successfully sought an injunction in the NSWSC prohibiting the bank from closing the account and to maintain its services.
In April 2023, HAI was granted permission by the NSWSC to file a Statement of Claim, with Directions made for the further conduct of proceedings. It took until 30 August for the first hearing date with a subsequent one on 6 September 2023.
HAI is a Muslim charity, registered with the Australian Charities and Not-for-profits Commission. BBA is a member of the Customer Owned Banking Association.
The case heard before Parker J largely centres around its “contractual obligations” to Human Appeal as its customer” with reliance placed on “on the duty of cooperation and good faith generally implied in commercial contracts.” [14] Additionally, the question of BBA meeting it’s obligations under AML/CTF was raised.
Findings
There was also some emphasis on the BBA meeting its obligations under the Customer Owned Banking Code of Practice. Human Appeal argued that “termination without justification, or reasons, if permitted under the terms and conditions, breached that requirement of the Code of Practice.” [17] Of interest was the fact that the Court rejected BBA’s arguments that “(20 weeks over the past two years) is taken up by the Defendant’s Financial Crimes Team (which, in 2021 comprised four analysts and one Senior Manager) actively reviewing and managing The Plaintiff’s accounts on a daily basis”.
BBA claimed “the need to continuously monitor the large number of transactions in and out of The Plaintiff’s account has removed resources from other important monitoring activities”. It further claimed “[o]n average, the Defendant’s staff spend at least one hour per day on the review of transactions undertaken by The Plaintiff, due to the complexity and volume of transactions, which is significantly higher than other Bank customers.”[99]
Parker J regarded this evidence as questionable, stating “[i]f this is correct, then the Bank could have readily put on evidence to prove it directly. But I am not sure whether it would be a justification for termination in any event.”[101]
The Court did note that the case was complicated by the AML/CTF’s requirement to maintain secrecy. However, Parker J said “I do not think that this would have been an obstacle to giving at least some explanation in the present case, if the Bank’s decision had actually been based on the administrative burden of complying with the Act.” [145]
In the end, Parker J said “I find myself driven to the conclusion that the Bank did not have reasons for termination which would sustain scrutiny. The purported termination was therefore invalid.”[135]
A concession
BBA’s counsel conceded that termination clause on giving 20 days notice “cannot be used unless the Bank actually has a valid commercial reason for termination goes some way to redressing the balance. But the practical value of that concession is limited if, as clause 20 provides, there is no obligation to specify the reason in the notice. That means if a bare termination notice is given, as in this case, the customer has no practical means of finding out the reason for the decision, and challenging it, short of launching legal proceedings.”[142]
What this means
I would suggest the Court’s decision effectively means:
1. banks cannot blindly rely on their Terms and Conditions clauses to terminate accounts as they have been doing;
2. banks must give reasonable notice before de-banking any customer; and
3. the customer should have access to dispute resolution. This will be particularly relevant to consumers and small business account holders.
Whilst this affected a member of the Customer Owned Banking Association, it will also affect the Australian Bankers’ Association members. Whether AFCA steps up to the mark, given its ability to ignore the law, remains to be seen. The Government’s present attitude of “monitoring the situation” and doing absolutely nothing doesn’t help anyone. Should AFCA choose not to, hopefully the ACCC and ASIC will see fit to enforce the Unfair Contract Terms legislation. They need to do so with far more vigour than they have up to now. We need to put a stop to this type of action.