Schoolteacher ‘misled’ by Bank of Queensland into $9000-a-month Wendy’s franchise disaster

THE bank manager who “misled” a teacher into buying a doomed Wendy’s franchise stole $156,000 from two customers — and has since disappeared.

A DODGY Bank of Queensland branch manager who “misled” an Adelaide primary school teacher into buying a doomed Wendy’s franchise was sacked for stealing $156,000 from two other customers the following year.

The revelations came after Suzanne Riches told of how she agreed to purchase two franchises, only for the bank to put her “between a rock and a hard place” by doubling her monthly interest payments once it was already too late to pull out of the contracts.

Giving evidence before the banking royal commission on Wednesday, Ms Riches said her company was forced into liquidation and she had to sell her property in the coastal town of Normanville after struggling to meet the nearly $9000-a-month repayments.

In 2012, Ms Riches and her husband looked into buying a franchise using inheritance from his mother, settling on two Wendy’s outlets in Adelaide’s Westfield Marion Shopping Centre.

The commission heard that Ms Riches received conditional approval for a $280,000 business loan, based on the documentation provided by Wendy’s about the performance of the two franchises.

“We made an appointment with the branch manager, and I specifically asked him, ‘Given the information you’ve been supplied with and your calculations, are we in a position to be viewed favourably for this loan?’” she said.

“I remember asking two or three times, and specifically saying, ‘Will the Bank of Queensland be able to supply a loan for us?’ To which he answered, ‘Yes.’ On the basis of that, I then asked again, ‘So I can make an offer on the two Wendy’s outlets?’”

Despite being warned by her accountant that the “bottom line profit margin already looks skinny”, Ms Riches said she and her husband, who had hospitality experience as a chef and caterer, were confident they could improve on that — so they signed the contracts.

As the settlement date of October 8, 2012 neared, however, numerous phone calls and emails to Bank of Queensland went unanswered. It wasn’t until a week after the settlement date, on October 15, that Ms Riches was called into the branch to sign the final letter of offer.

“I was alarmed that the [monthly repayment] amount had doubled from $4400 and the term of repayment was only three years,” she said. “[The branch manager] said that was due to the [short] nature of the leases and that was the only way he could get the loan through.”

Ms Riches said she “unfortunately” signed the paperwork.

“I felt I was between a rock and a hard place,” she said. “The cooling-off period [with Wendy’s] had lapsed on October 5 and I had no way to get out of the contract. There were threats of legal implications.”

The Wendy’s franchises had ‘thin’ margins.

Because of the delay in settlement, she said the Wendy’s franchises missed out on an estimated $40,000 in revenue over the lucrative school holiday period, putting them “behind the eight-ball” from the beginning and struggling to meet the crippling repayments.

“I tried to make the payments whenever possible, but it was very, very difficult to make those repayments,” she said.

Ms Riches said Bank of Queensland had misled her, and that she would have reneged on the franchise agreement had she known.

She ceased operating the Wendy’s franchise in mid-2015. Her company was placed into liquidation she remortgaged the family house under a deed of forbearance signed with Bank of Queensland. The loans have since been refinanced through ANZ.

On Thursday, Bank of Queensland’s general manager of product performance and governance, Douglas Snell, revealed the branch owner-manager responsible had been “terminated and referred to the police” in 2013 for misappropriating $156,000 from two customer accounts, unrelated to Ms Riches’ case.

Mr Snell added that “we haven’t been able to get in contact” with the owner-manager since.

The commission heard that the branch was sent a warning letter after receiving a “fail” in a credit risk review in 2012, but was allowed to continue trading. Mr Snell said the letter was not a formal breach notice. “No, it’s a warning,” he said.

“[The letter] is effectively calling out behaviours that aren’t meeting requirements under the owner-manager agency agreement. If there are multiple breaches, that can have ramifications for the owner-manager.”

Mr Snell said the manager was not authorised to provide Ms Riches with the conditional letter of offer. “He committed verbally to a loan which isn’t documented, and he issued a conditional letter of offer outside his authority,” he said.

The commission heard that the “inexperienced” loan officer at the branch submitted an error-riddled worksheet to the bank’s credit department, which was forced to knock the loan back.

“The original conditional letter of offer shouldn’t have been issued, and if it had, it should have been done post-credit assessment,” Mr Snell said.

He confirmed that despite Ms Riches almost immediately defaulting and never being able to make a full monthly repayment on the loan, no assessment of the loan approval was conducted until she lodged a complaint with the Financial Ombudsman in 2014.

Counsel for Bank of Queensland, Noel Hutley SC, told Commissioner Kenneth Hayne on Wednesday that Ms Riches “may well have been inadequately advised by her lawyers and accountants and Wendy’s”.

“The position of the banks cannot become akin to that of a custodian to the interests of the small business holder, because they need to and should be looking to their own advice,” he said.

“On the whole they have the intelligence and sophistication to protect their own interests. Obviously the banks can’t engage in anything which is sharp practice, misleading conduct or the like, but you are being asked to consider the banks being put in position of some overarching or custodial position.”

It comes after the commission heard from former Pie Face franchisee Marion Messih, who lost everything when the business collapsed and Westpac reneged on a repayment plan, taking her property.

On Monday, Westpac was forced to defend its actions after attempting to evict cancer-stricken disability support pensioner Carolyn Flanagan, who was roped into going guarantor for her daughter’s failed business loan.

The third round of hearings focusing on small business lending kicked off on Monday and runs for two weeks until June 1. The commission held its first round of public hearings from March 13 to 23, with consumer lending practices under the spotlight. The second round focusing on dodgy financial advice ran from April 16 to 27.

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Originally published as Schoolteacher ‘misled’ by Bank of Queensland into $9000-a-month Wendy’s franchise disaster