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Farmers have experienced much of the scandalous banking practices now being exposed, but representatives say the royal commission is set to miss the worst of it. By Karen Middleton.

How farmers fought for the royal commission

Charlie Phillott overlooking Carisbrooke Station near Winton, in Queensland.
Credit: Mark Kolbe / Getty Images

In the contagion of outrage over Australia’s banks, Queensland farmer Charlie Phillott might reasonably be described as patient zero.

The high-profile battle that Phillott and his son waged with ANZ Bank over the 2014 seizure of their family farm put a face to brutal banking practices.

“The way they intervened, they just sent the bailiff out to put Charles, my son, off the property – gave him 15 days, I think, to get off,” Phillott told The Saturday Paper, about the bank’s seizure of Carisbrooke Station, 80 kilometres south-west of Winton in central Queensland.

While the collapse of Storm Financial and Opes Prime five years earlier had put the spotlight on unscrupulous investment and advice practices, the Phillott family’s plight swung attention onto lending and the arbitrary nature of contractual arrangements. Ultimately, they had a victory – they got the farm back outright, with a personal apology and the loan waived.

Charlie Phillott says the royal commission now under way needs to herald changes that ensure what happened to his family doesn’t keep happening.

“I hope the government enacts the necessary legislation to make sure customers can have more trust in their dealings with banks … It’s a one-sided show.”

Phillott reflects the fears of some who worry the royal commission may not get to what they say is the real problem: the way banks can transfer loans between them, unilaterally dictate and then change the terms, downgrade property values and then foreclose without negotiation, seize and offload the properties at fire-sale prices, leaving borrowers still owing them the difference – all within the law.

It was independent Queensland federal MP Bob Katter who took up Phillott’s case, helping garner attention first from the media and then from the bank.

Katter believes the royal commission isn’t looking where it should.

“The contractual arrangements is probably at the heart of what really needs action,” Katter told The Saturday Paper.

He says the commission needs to examine how one-sided contracts can be legal in the first place.

Katter says while the royal commission is “better than nothing”, it won’t examine the practices of insurance companies and receivers, not just banks and wealth-management companies.

“The part that’s missing is the assessment of banking as a whole.”

Katter has long argued the federal government should establish a rural reconstruction board, which could go guarantor for struggling agricultural businesses, securing low borrowing rates and setting reasonable repayment conditions. He points out the federal government underwrites the big banks but not those borrowing from them on what he says are often unreasonable terms.

At picturesque Carisbrooke, the Phillott family was running both a cattle and tourism business, showing campers and day-trippers the property’s rugged red-dirt outcrops and carefully preserved rock art.

But the area was in drought. By 2008, as debts mounted, Charles jnr took out a $1.5 million interest-only loan through agricultural lender Landmark to consolidate the debt and expand the tourism business. Landmark and its loans were sold to the ANZ Bank, which set about liquidation. There was no longer a local bank representative, just a barrage of letters outlining new and harsher terms.

The bank halved the property’s value, wiping out the family’s equity, then declared the Phillotts in default, despite them still having $7000 left on an overdraft. It then doubled their interest rate.

They kept making full payments until 2012 when the interest crippled them. Court action followed, then the eviction edict. Charlie Phillott contacted Bob Katter.

Katter and his son, Queensland state MP Robbie Katter, had begun holding meetings about the rural debt crisis with the then Gillard Labor government in 2012. The government offered concessional loans, something Bob Katter says could not solve the farmers’ problems. “They didn’t want any more debt,” he says.

In December 2014, Robbie Katter convened a meeting at Winton to hear from farmers facing foreclosure. He called it the “farmers’ last stand”.

Bob Katter and his adviser, Anne Pleash, persuaded influential Sydney radio host Alan Jones to attend.

Another offer of concessional loans, this time from the Abbott government, was again rejected.

Well-connected and outspoken Oakey-based vet David Pascoe also attended and afterwards penned an evocative 1000-word open letter detailing Charlie Phillott’s plight. Pascoe accused the banks of using the drought to devalue and take over properties, which they could then sell later “and make a fortune, because once the rains come – as they always do – this land will be worth four to 10 times the price”.

His letter scored two million hits on Facebook. Channel Nine’s 60 Minutes program took up Phillott’s case, with journalist Michael Usher accompanying him to ANZ headquarters in Melbourne. Phillott secured a meeting with the deputy chief executive and was given a further promise that the bank would look into it.

Behind the scenes, Bob Katter and Pleash were also demanding answers. After a series of meetings with mid-level representatives who were focused entirely on the bank’s ledger, they reached ANZ chairman David Gonski.

Recognising the reputational damage to ANZ, Gonski took action.

“When he found out what had happened in that case, he ordered the CEO to fix that up and to go through the records to see how many other cases they had,” Katter says.

Gonki’s commonsense approach garnered an apology to Charlie Phillott, delivered in person at Carisbrooke by chief executive Mike Smith in August 2015, and the return of the property, with no ongoing debt.

ANZ also put a moratorium on foreclosing on any new drought-affected farmers for a year.

Katter took up the broader issue of rural debt in Canberra, threatening to name recalcitrant banks in parliament.

Other MPs and senators had also been raising concerns about banks and demanding action at the federal level, especially New South Wales Nationals senator John “Wacka” Williams, who had urged both then prime minister Tony Abbott and his successor to consider an inquiry with judicial powers.

Williams served on the Senate economics references committee that held a 2013 inquiry into the operations of one of the financial regulators, the Australian Securities and Investments Commission, in the wake of a series of investment and financial planning scandals.

Reporting midway through the following year, the inquiry – chaired by then Labor senator Mark Bishop – called for the establishment of a royal commission.

But when the Greens put a motion before the Senate in June 2015 again demanding a royal commission, and Williams crossed the floor to support it, Labor and the Liberals combined to vote it down.

When Malcolm Turnbull replaced Abbott, he rejected repeated calls for a royal commission. The banks would not have it and neither would the government.

The real crunch came after the 2016 federal election, which left the Turnbull government with only a one-seat majority.

In October 2016, Katter produced a private member’s bill proposing a commission of inquiry into the banks and persuaded Queensland Nationals MP George Christensen to say he would support it.

The Greens were already backing the idea and Labor joined the chorus, drafting more bills and using parliamentary tactics to embarrass and threaten the government.

In March 2017, the advocates jointly drafted a new bill for a commission of inquiry. The banks and government leadership continued to oppose it until Christensen and fellow Nationals MP Llew O’Brien threatened to back it, putting Turnbull’s grip on government at risk.

Urgent dialogue ensued. Suddenly, the big four banks wrote to Turnbull saying they would acquiesce. Turnbull was finally forced to announce a royal commission.

In the wake of its recent revelations, many have scrambled to either take credit or avoid admitting they were wrong to not act sooner.

Williams says people should stop squabbling.

“Let’s just get it cleaned up and have confidence restored to the financial system,” he told The Saturday Paper. He urges angry Australians not to blame junior frontline bank staff.

One Nation leader Pauline Hanson is among those claiming some credit, although it was her then senatorial colleague from Western Australia, Rod Culleton, whose bank had foreclosed on his property, who campaigned for a royal commission.

Hanson negotiated a lesser parliamentary inquiry into farm lending instead.

That inquiry, which she chaired, had finished taking evidence but not yet reported when Turnbull made his announcement. It recommended the royal commission examine both the evidence it unearthed and its findings.

But the commission’s terms of reference specify that it is not required to look at anything the commissioner believes “has been, is being, or will be, sufficiently and appropriately dealt with by another inquiry or investigation or a criminal or civil proceeding”. So it can ignore the findings of the 38 or more other inquiries that have been held into banking and financial services since 2010.

Bob Katter believes the commission won’t get to what he argues is the real problem: the one-way nature of bank contracts and the structure of a system whereby borrowers remain indebted to their banks even after foreclosure.

Katter says the Australian system should be more like the United States, which has non-recourse lending, meaning borrowers whose properties are forcibly sold off don’t have any ongoing debt to the bank. They simply give up the keys, walk away and start again, encouraging caution among lenders.

Williams wants the government to consider minimum mandatory sentences to remind bank officials that bending the rules can be a crime.

Three years on, Charlie Phillott says the property is not back to its best and nor is its tourism business. The family can’t afford to invest more until there is decent rain and they can get some money behind them.

He isn’t asking for much more. “If the royal commission would just clearly define what sort of powers the banks have and people could be informed of what they’re doing, so they know what’s happening,” he says, “I think that would be a start.”

This article was first published in the print edition of The Saturday Paper on Apr 28, 2018 as "Bursting the banks". Subscribe here.

Karen Middleton
is The Saturday Paper’s chief political correspondent.