The Commonwealth Bank of Australia is playing hard ball against victims of failed managed investment scheme Willmott Forests, levying penalty interest rates over the period of a long-running class action against the bank, which has doubled the amount owed by some investors. Source: The Sydney Morning Herald
Greens Senator Peter Whish-Wilson called the bank’s approach “immoral and reprehensible”.
The Federal Court of Australia will decide on July 23 whether to approve the settlement of a class action brought by 3500 investors against Willmott Forests, which is in liquidation, and CBA, which is understood to have lent more than $200 million to investors in the scheme.
CBA’s insistence that investors pay penalty interest contrasts with Bendigo and Adelaide Bank, which waived all penalties and accrued interest on loans to investors in another failed MIS scheme, Great Southern, if investors continued to repay the original loans.
Labor Senator Sam Dastyari is chairing a Senate inquiry into tax-driven forestry managed investment schemes. The next set of hearings are planned for early August.
Senator Peter Whish-Wilson wrote to CBA chief executive Ian Narev last month asking why CBA deems it fair and reasonable to charge the penalties. Mr Narev has not responded to the letter.
A spokesperson for CBA confirmed receipt of the letter and said the bank is “in the course of responding to the Senator”.
“What is lawful is not necessarily ethical,” Senator Whish-Wilson told Fairfax Media. “What happened to these investors would not be legal today under new FOFA [Future of Financial Advice] laws.
“Whilst the bank’s claim that contractual obligations from 10 years ago might be technically legal, holding investors to these contracts is immoral and reprehensible.”
James Anderson, an IT consultant who invested $99,000 in Willmott on the advice of his accountant – who was subsequently banned by ASIC – has seen his debt to CBA balloon to more than $180,000, after a penalty interest rate of about 12% was applied over the four years of the class action.
He and many other investors stopped paying back the loan on advice from M+K, the law firm running the action. The firm did not respond to a request for comment.
In a notice of objection filed in the Federal Court last month, Mr Anderson described the settlement as “unfair and unreasonable”. The objection said CBA has an obligation to look after borrowers and “to show ‘no care and no responsibility’ after backing Willmott investments, and still seek full interest from unsophisticated investors, is both immoral and unjust.”
Under the proposed Willmott settlement, Mr Anderson and other group members will receive around half their legal fees back but nothing else.
CBA will pay $3.1 million to cover 51% of legal costs, according to the notice of proposed settlement.
At the Senate MIS hearing next month, ANZ Banking Group is also expected to come under pressure for its funding of loans to investors in Timbercorp.
Senator Whish-Wilson said victims of forestry MIS schemes had been let down by government, financial planners, and the banks “who bankrolled and profited from this inevitable market failure”.
