Malcolm Turnbull kicked off a new era in banking

The Australian – Robert Gottliebsen, October 11, 2017

These days rarely are there good news stories about the prime minister. Good news stories about banks are even more rare. But today I have a unique good news story because it embraces both the prime minister and a bank. And what makes the story better is that the bank started off by being a delinquent operator but discovered there is a better way to do business.

History will record that on the evening of Monday September 14, 2015 Malcolm Turnbull defeated Tony Abbott in a Liberal party poll and became Prime Minister of Australia.

But if we push forward a decade to 2025 history may record that a more significant event took place on that that fateful Monday. On the morning of Monday September 14 the ALP, the Greens and the cross benchers in the Senate turned the Government’s totally useless fair contracts bill into proposed legislation that would transform vast areas of small business in Australia. It would greatly increase employment in the sector.

During the afternoon of that Monday the Abbott government announced that in the light of the Senate vote the government would abandon the fair contracts legislation (they had a secret deal with the franchise and business councils). It was all over for small business until the evening of the same day when Turnbull beat Abbott in the vote. The day after he was sworn in Prime Minister Malcolm Turnbull, to his great credit, told the cross benchers he would accept the Senate amendments. And so on November 12 2015 extensive fair contracts legislation became law to come into operation a year later.

I am biased because I drove my readers to distraction campaigning for the legislation over the previous 18 months, but in my view Malcolm Turnbull has made no bigger non-defence decision in his Prime Ministership. History will show he transformed vast areas of business and in all, some eight million standardised contracts issued by large organisations to small enterprises employing less than 20 people will need to be changed. But nothing that happens in this revolution in business practices will be more dramatic than what has happened at the National Australia Bank. When the legislation came into operation a group of NAB executives declared that they were more important than parliament and they would decide what was fair and unfair. And so they wrote to their small business customers saying that they would amend their overdraft agreements “to comply” with the act. I managed to get a copy of the proposed NAB changes and discovered the bank was telling “porky’s”. The NAB’s new overdraft agreement was still in clear breach of the act. Any junior lawyer or journalist would have told them the new overdraft agreement did not comply. The heading on my March 2017 commentary read: “National Australia Bank is defying the will of the Parliament on fair contracts”.

I expected to get a withering blast from NAB chief executive Andrew Thorburn. Instead he sent a short note saying he would attend to it. Heads rolled. Fast-forward to October 2017 and NAB proudly unveiled their new full agreement. I had some emotion reading it.

Gone were the clauses that enabled the bank to do anything they wanted to. The old agreements allowed NAB (and all banks) to call up their overdrafts any time they liked for no reason. If you were paying on time and fell out with the NAB or any other bank, they could pull the rug. They didn’t do it every day but they could. Accordingly it was a relationship based on fear. Its no wonder small enterprises have been reluctant to borrow from banks.

ASIC and the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell convinced the big banks to obey the law but some, like NAB, have gone further.

The NAB summary of its loan agreements and the agreement itself is very understandable, setting out in plain language what the agreement means. NAB found in focus groups that their small business customers wanted a partnership with their bank and the wording in the covering letter was changed to reflect this. The original draft started by saying “your loan has been approved”. The new agreement starts: “ We’re are excited about your future and how we can help. We’re pleased to confirm the following facilities …” I attach both the loan agreement and the cover letter embracing loans up to $3 million. Apart from the wording and clarity the big point in the agreement is that if a small enterprise keeps up its payments the rug cannot be pulled unless the person goes to jail or is bankrupted. Glenda Korporaal covered the agreement last week.

We are starting a new era in banking.