A case brought by the corporate regulator over the collapse of Storm Financial is shaping up as a battle over how far consumer laws protect bank customers.
A CASE brought by the corporate regulator over the collapse of Storm Financial is shaping up as a battle over how far consumer laws protect bank customers.
In defence documents filed in the Federal Court last week the Bank of Queensland and Macquarie Bank challenge whether people who borrow to invest qualify as consumers.
Macquarie Bank's defence also argues that margin loans are not covered by the Code of Banking Practice.
On March 1, a judge ordered the Australian Securities and Investments Commission to provide further details of its claims that a Townsville couple, Barry and Deanna Doyle, were eligible to claim under consumer laws such as the prohibition on unconscionable conduct in the ASIC Act.
''This is a particularly contentious issue and [the banks] are entitled to know precisely how the applicants propose to put their case on the point,'' Justice Lindsay Foster said.
ASIC's action on behalf of the Doyles is intended to set a template for further individual compensation suits over the $3 billion Storm collapse if it succeeds.
Before the Doyles became clients of Storm in 2006, when both were 62, they owned their home, worth $450,000, had $640,000 in superannuation and no debts.
They borrowed from Bank of Queensland against their house and took out margin loans with Macquarie to invest $2.2 million in trusts linked to the sharemarket.
When the global financial crisis hit, their investments were sold for $1.7 million, leaving them with a mortgage on their home of $456,000.
In the statement of claim, ASIC said in 2006 Mr Doyle was working as a part-time council librarian earning $17,540 a year.
His wife had retired from her job in a bakery and was receiving benefits of $7000 a year.
The defences from the two banks say the Doyles signed declarations between 2006 and 2008 that their loans were ''to be applied wholly or predominantly for business or investment purposes''.
This precluded them from claiming as consumers under the then Trade Practices Act or the ASIC Act, they say.
Macquarie says neither of the Doyles fitted the definition of ''customer'' under the Code of Banking Practice, namely an individual who ''acquires a banking service which is wholly and exclusively for his or her private or domestic use''.
Both banks say the Doyles were acting under the advice of Storm, a licensed financial adviser.
The Bank of Queensland denies ''that either of the Doyles were in a position of special disadvantage and could not judge or defend their own interests as alleged''.
It had no duty to warn or monitor the risks associated with the home loans, it says.
Macquarie says the Doyles signed acknowledgments that they had read and understood the risks of margin lending set out in a booklet containing their application forms.
The bank was not obliged to advise them of any other risks, it says.
No date for the trial, to be heard in Sydney, has been set.
Frequently Asked Questions about this Article…
What is the ASIC case about and why does it matter for investor consumer protection?
ASIC has brought a case tied to the collapse of Storm Financial that asks how far consumer laws protect bank customers who borrowed to invest. The regulator says its action could create a template for compensation claims linked to the roughly $3 billion Storm collapse, so the outcome could affect how consumer-protection rules apply to investor borrowers.
Who are the main parties involved in the Storm Financial legal action?
Key parties named in the article are the corporate regulator ASIC, the borrowers Barry and Deanna Doyle, Storm Financial (the adviser firm), and the two banks defending the case — Bank of Queensland and Macquarie Bank. Justice Lindsay Foster is handling procedural matters in the Federal Court.
What happened to Barry and Deanna Doyle after they became clients of Storm Financial?
According to ASIC, before becoming Storm clients in 2006 the Doyles (both age 62 at the time) owned a home worth about $450,000, had about $640,000 in superannuation and no debts. They borrowed against their home and took margin loans to invest roughly $2.2 million in trusts. During the global financial crisis their investments were sold for about $1.7 million, leaving them with a mortgage of about $456,000.
Why do the Bank of Queensland and Macquarie Bank argue the Doyles can’t claim consumer protection?
Both banks say the Doyles signed declarations stating their loans would be used 'wholly or predominantly for business or investment purposes,' which the banks say precluded consumer claims under the Trade Practices Act and the ASIC Act. They also argue the couple acted under advice from Storm Financial, a licensed adviser, and so were not eligible as consumers in this context.
Does the Code of Banking Practice cover margin loans, according to Macquarie Bank’s defence?
Macquarie’s defence argues that margin loans are not covered by the Code of Banking Practice and that the Doyles did not meet the Code’s definition of a 'customer' — which the bank says requires a banking service used wholly and exclusively for private or domestic use.
Did the Doyles receive warnings about margin lending risks?
Macquarie says the Doyles signed acknowledgements indicating they had read and understood the margin-lending risks set out in a booklet that accompanied their application forms. The bank says it was not obliged to advise them of any risks beyond what was in those documents.
What did the court order ASIC to do in the case?
On March 1, a judge ordered ASIC to provide further details of its claims that the Doyles were eligible to claim under consumer laws such as the prohibition on unconscionable conduct in the ASIC Act. The judge noted this is a particularly contentious issue and the banks are entitled to know precisely how ASIC will put its case.
How could this case affect everyday investors concerned about bank responsibilities?
If ASIC succeeds, the case could set a template for further individual compensation suits arising from the Storm collapse and potentially clarify how consumer-protection laws apply when people borrow to invest. The issue is contentious, though, and no trial date has been set, so the final impact remains uncertain.
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