An Australian bank's decision to suddenly change the conditions on a business loan cost a couple their pub, the Financial Services Royal Commission has heard.
In 2005, Stephen Weller and his wife — along with a business partner — bought the Nambucca Hotel at Macksville, NSW after securing a loan with Bankwest, which is now owned by the Commonwealth Bank.
Three years later, the Wellers bought out their partner thanks to a new, 15-year Bankwest business loan worth A$3.72 million ($4m).
But the banking royal commission heard yesterday the Wellers lost their pub after the bank changed the loan term from 15 to just two years.
In 2008, the bank valued the pub at A$4.53m, but when the global financial crisis hit soon after, revenue began to drop.
And in 2010, the bank contacted Weller to inform him that due to the change in circumstances, the cost of the loan would increase.
Weller had originally agreed to a loan with interest rates between 2.24 and 2.27 percentage points above the bank bill swap rate — but that margin increased significantly to 3.95 per cent, as well as increasing the amount of principal repayments.
Weller tried to negotiate a lower repayment amount, as he worried he wouldn't be able to meet the bank's suggested rate.
He received an unexpected response in the form of an email soon after.
"Hi Stephen, my apologies for not getting back to you sooner … I would like to cover off a few points with you. As discussed the loan would be amortised … however with a term of two years," the bank's email stated.
The term of the loan was later dropped to just one year, which meant the couple were faced with a frightening reality: Their 13-year loan had evaporated, and they had to constantly renegotiate it.
And in September 2012, things got worse yet again, when the bank told Weller the value of the business had plunged — although it failed to supply any evidence to back the claim up.
Bankwest wanted more security, so the couple sold their rights to three pokie machines. They also sold their home in Sydney.
Another valuation of the pub was conducted, but the bank refused to tell the couple the details of the findings, other than to insist the business was valued at close to the A$3.6m level of the mortgage.
The proceeds from the pokie sale initially went to a NSW government body, which then failed to pass the funds on to the bank before a deadline set by Bankwest.
The bank also claimed the loans were due, and claimed the Wellers had breached a document which had been created to stall the forcing of repayments — but the bank said the couple had breached that document thanks to the late payment caused by the NSW body.
Despite these financial setbacks, Weller told the commission he was working "from 3am to 9.30 at night" and as a result, he never missed a single payment.
But in November 2013 the bank told the Wellers they needed to sell up, giving them a tough three-month deadline — despite the Wellers' real estate agent claiming the pub couldn't be put on the market in December.
The Wellers contacted the Financial Ombudsman Service (FOS) in a bid to stop Bankwest from calling in the receivers.
They also sold their house, which they had not used as security for their business loan.
Receivers were eventually called in July 2014, while the bank demanded personal guarantees Weller had given, and these were resolved in the Supreme Court in 2016.
Commonwealth Bank took over Bankwest in 2008, and soon found out more than half of the bank's loan records revealed risky business lending.
Today, the hearing also heard from fellow Bankwest customer Michael Doherty, who claims he was "totally bankrupted" by the bank's actions relating to his multi-million dollar Hobart hotel development.
CBA's chief credit officer Peter Clark is now being questioned over the bank's loan practices.
The hearing continues.