A NSW Supreme Court judge has slammed Bendigo Adelaide Bank – finding against it in an action that saw elderly Sydneysiders Steve and Iris Karamihos in danger of losing their home.
In 2007, despite approaching their mid-70s, Mr and Mrs Karamihos were offered a $1.2m loan to be repaid over 25 years by the Bendigo Adelaide Bank. Despite their best efforts, by January 2008 they found it impossible to meet the monthly repayments of over $7000.
To compound their problems, in 2009 they were unable to continue to operate their cafe business and Mr Karamihos had to retire due to his wife succumbing to illness.
For more than four years the couple have fought to prove that the bank – in offering such a loan – was guilty of breaching ‘responsible lending practices’ which all banks must adhere to.
The matter first came to light when the couple contacted Unhappy Banking, an organisation dedicated to overturning injustices to banking customers. Their story also became the subject last year of an investigation by Channel Nine’s A Current Affair program.
Geoff Shannon, founder of Unhappy Banking, told Neos Kosmos: “This appeared to be a clear-cut case of a commission-based finance broker selling a totally inappropriate product, and the Bendigo Adelaide Bank having no proper checks and balances in place.
“Instead of acknowledging that, they took a heavy-handed approach to this vulnerable couple; the bank tried to use its financial might against them by trying to foreclose on the loan and seize their home.”
Mr and Mrs Karamihos were in a state of disbelief after the ruling, but immensely grateful.
“We were facing ruin,” said Mr Karamihos, “now we can stay in our home. Why didn’t the bank do this from the start?”
In his finding handed down last week, Justice J Pembroke was scathing of the bank and the broker who put the deal together, noting the contract was unjust for the purpose of both the National Credit Code and the Contracts Review Act. He ordered that the couple’s position be reinstated back to that of prior to the loan transaction.
Iris and Steve Karamihos will now avoid the punitive interest charges of the loan and a reduced calculation will be made on the balance of their debt, having already paid around $480,000.
Justice Pembroke said in his judgement that the ability of Mr and Mrs Karamihos to read and understand English was “feeble” and had been a vital factor. He said their ability to do so in relation to documents relating to their legal obligations on signing the loan agreement “was virtually non-existent”.
The finance broker who engineered the loan and completed the application form for Mr and Mrs Karamihos was named as Mr George Koovousis of the company Mortgageport.
Justice Pembroke said that the broker “had no commercial incentive to advise Mr and Mrs Karamihos that the loan was unsuitable for them. His financial incentive was entirely the opposite”.
He added that factors such as “their age, the prospect of ill health and the natural onset of an inability or disinclination to continue working should have shaped the approach to the loan by George Koovousis, Mortgageport and the Bank of Adelaide and Bendigo”.
While admonishing the bank’s failings Justice Pembroke also described the borrower as having “misplaced enthusiasm and an absence of reality”.
He went on to say that there was an “indubitable public interest in the protection of aged borrowers who do not know what is in their best interests… where the security for the borrowing is their sole residence”.
The judge rejected the Bank of Adelaide and Bendigo’s defence, saying the bank knew the Karamihos family were without independent legal advice, and that it had not taken steps to ensure Mr and Mrs Karamihos understood the nature and implications of the transaction.