Finance companies are racing against time to squeeze money out of Australian small businesses before a major Federal Court case shows that their contracts are unenforceable.
Two separate groups of telco companies promoted the notorious telco equipment / finance / servces bundling scam that has cheated businesses of millions of dollars, saddling them with massive debt for goods and services never supplied. One of these groups has been taken to court by ACCC, which is determined to smash its illegal conduct.
Watching on the sidelines are the financiers of the other group. It doesn’t take much to figure out that they won’t be able to recover their dodgy debts after the Federal Court case against the first group is over. So the finance companies are grabbing as much cash from innocent business operators as they can before the ACCC shuts the gate.
And Bank of Queensland’s equipment finance subsidiary is one of the players. Yes, that’e the same Bank of Queensland that denies all responsibility for the outrageous lending practices of failed Storm Financial.
Elements of the scam
The scam typically depended on three elements.
First, a finance company stuffed to the gills with lending cash during a boom, needing to push out loans to keep profits high.
Second, a dodgy telco, willing to tell potential customers anything to get their signature on paper. Even willing to forge signatures if the prospect was unhelpful and didn’t sign enough documents.
Third, a middleman to connect the two. A finance broker with links to the finance company and the dodgy telco.
The broker has the credibility with the finance company to access a stream of funds. Behind the curtain, it makes the funding source available to the dodgy telco. The telco sends out sales staff out to do deals at any cost (to the customer).
We’ve explained previously what happened next. It makes chilling reading.
Two players in the game
There were two major players in the game: one group of companies featuring Axis Telecoms Pty Ltd, and a separate one starring Komtel Pty Ltd.
They had to be caught and they were
Frankly, ACCC could have picked either group of companies to sue in the Federal Court. But they chose the Axis Telecoms companies and look as though they are slowly steamrolling them into defeat.
That leaves the Komtel group of companies watching on the sidelines. Actually, Komtel was allowed to go into liquidation as one of the orchestrated steps in the scam.
Also on the sidelines are the finance companies.
The position of the financiers
You’d weep (with laughter, sometimes) if you hear the line the ultimate financiers are pushing.
“We aren’t guilty. We totally trusted the middleman. So how can we be guilty ? It’s the customer’s fault for being ripped off.”
The argument is that because the finance companies were careless about everything their broker representatives did, and because their broker representatives appointed dishonest telco companies to do the face-to-face selling, they (the financiers) are the innocent parties. PLEASE !!!
So the finance companies find themselves:
- ripped off by Komtel and companies like it (but no point chasing Komtel … it’s being liquidated, remember ?)
- facing the prospect of a Federal Court decision in a few months that will blow the lid off this type of scam - making any further recoveries from ripped off customers very difficult
- with a window of opportunity to collect as much as possible from the ripped off customers.
So what are they doing ? Demanding, demanding, demanding. Suing, suing, suing.
The position of the ripped off customers
They’re in small business. They know they’ve been scammed, but they couldn’t explain the legalities. They’re being chased for $30k or $50k or $60k and they can’t afford big legal fees to fight it. So when they get a chance to settle for two thirds, they take it.
That’s two thirds of a false claim against them. Not two thirds of anything they really owe.
And that suits the finance companies, too. Two thirds of a false claim is a fantastic result. Especially when it will all come to a screaming halt when the Federal Court deals with the ACCC case.
But we’re ‘innocent’ bleat the finance companies
Did they actually know what the telcos were doing ? Probably not.
Did they take reasonable steps to prevent their money from financing dodgy telco schemes ? No.
That’s not ‘innocent’.
An interesting parallel
There’s an interesting parallel with the allegations against the Bank of Queensland in relation to Storm Financial.
Commonwealth Bank has admitted that it allowed Storm to sign up borrowers without due care. As The Australian reported on 18 June 2009:
CBA chief executive Ralph Norris, who initially played down the bank’s role in the collapse of Storm in January, said yesterday it had identified “shortcomings” concerning loans it made to Storm clients. The issue is understood to involve some customers being granted loans they were unable to repay.
“We are not proud of our involvement in some of these issues and we are working toward a fair and equitable outcome for our affected customers,” Mr Norris said yesterday. “Our customers can be assured that where we have done wrong, we will put it right.”
Contrast that with Bank of Queensland’s irresponsible position on the same issue:
Statement from Bank of Queensland regarding Storm Financial
Thursday, 25 June 2009
Given the significant misinformation in the media recently regarding Bank of Queensland’s dealings with Storm Financial and treatment of Storm Financial customer accounts, the Bank would like to take the opportunity to clarify key facts.
Based on the Bank’s knowledge and enquiries to date:
- There is no evidence of improper or dishonest practices or conduct by the Bank in connection with Storm clients; and
- There is no evidence that the Bank has engaged in any misleading and deceptive conduct or unconscionable conduct in relation to its lending to Storm clients.
Translation: ‘We didn’t do it. Those people that we allowed to represent us in the market place did it. What has that to do with us ???’
More than a parallel
Actually, the gross lack of safeguards and responsibility that characterise the Bank of Queensland / Storm Financial case are not a mere parallel with the telco scam. They are history repeating itself.
The Bank of Queensland’s equipment finance arm, Bank of Queensland Equipment Finance Ltd, was just as slack in managing its representative relationships during the economic boom.
Yes, it appointed a middleman finance broker but didn’t have processes in place to effectively monitor what the broker did, And yes the broker engaged with the scammer Komtel, which took Bank of Queensland finance into the streets and misled small businesses into signing dodgy deals.
And yes Bank of Queensland Equipment Finance Ltd is using the window of opportunity to try and ‘recover debt’ from a small business that really doesn’t owe them a penny.
And yes, when we wrote (months ago) about a major lender that flatly denied that it had ever been involved with telco bundles, that was Bank of Queensland Equipment Finance Limited.
Time for ACCC to step up
Finance companies like Bank of Queensland Equipment Finance Ltd are no doubt working on the assumption that any ‘settlements’ they achieve are money in the bank. If ACCC put them on notice that each and every past ‘settlement’ will be liable to be re-opened and repaid (with an allowance for legal costs) if ACCC is forced to take formal action, we bet the financiers would get of the backs of Australia’s small businesses in an instant.
Because they know that they allowed the wrong thing to happen.
CommBank has had the guts to admit it, re Storm Financial. If BoQEF hasn’t got the decency to do the same thing, ACCC should help it see the error of its ways. Otherwise ACCC’s Federal Court action will be a blessing for some victims but leave others at the mercy of powerful finance companies that want little guys to pay for the companies’ mistakes.