The Australian Bankers’ Association has announced that it will make changes to the Code of Banking Practice to ensure its commitments to small business are “clearer”, after a government report found that loan arrangements put the borrower at a “distinct disadvantage”.
A report into small business lending practices, released by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell last week, found that the big four banks consistently engage in practices that have caused significant harm to some small business customers.
The ASBFEO inquiry investigated the circumstances surrounding a number of cases of alleged small business mistreatment by the banks, and concluded loan contract arrangements between banks and small businesses, put the borrower at a distinct disadvantage.
As such, Ms Carnell said that “change is overdue” and that “the banks are on notice”, with the inquiry making 15 recommendations, including a revision of the Code of Banking Practice.
Following the release of the report and recommendations, the author of the Code of Banking Practice, the Australian Bankers’ Association (ABA), said it will now be making changes to address some of the concerns raised.
In particular, the body said it would consider creating a “separate section” in the code for small business lending and improving the transparency of loan terms and conditions.
ABA chief economist Tony Pearson commented: “The issues raised by Australian Small Business and Family Enterprise Ombudsman Kate Carnell in this report are important. Alongside this, the Code of Banking Practice is currently being independently reviewed (Khoury Review).
“We expect the report of the Khoury Review to be published shortly, and we aim to respond to the recommendations, as well as those from the Carnell Review, by the end of this month.
“The ABA will make changes to the code to make sure our commitments to small businesses are clearer. We’re looking at having a separate section for small business lending and how we can improve the transparency of loan terms and conditions.”
Mr Pearson added: “Small businesses drive economic growth and jobs, and having access to finance is key to their success.
“Banks have heard the problems raised by small businesses and farmers and are focused on making banking better for them.
“This includes being more transparent and flexible in loan arrangements, and setting new standards on appointing receivers and valuation practices.”
The ABA said it was also “revamping” the existing Financing Your Small Business website to ensure that small businesses “have the information they need to manage and grow their businesses”.
Touching on Ms Carnell’s recommendation to create an industry-funded one-stop external dispute resolution (EDR) body, Mr Pearson said that ABA supported the recommendation “so more small businesses can have complaints heard without needing to use the courts”.
The ABA is also calling for an increase in the monetary and compensation limits “to ensure appropriate access to EDR by retail and small business customers”.
This would involve raising the value limit of disputes to $1 million and raising compensation awards to $1 million to ensure the framework “remains fit-for-purpose to support small businesses”.
The ABA argues that the EDR schemes should hear small business disputes that are similar to retail disputes (such as general insurance, credit product and transaction accounts designed for the retail market) to “ensure simplicity and clarity for small businesses on where to go to have their disputes heard and maintain efficiencies”.
However, it calls for a revised test for small business (taking into account the number of employees, turnover, size of loan or investment, and credit exposure), to “ensure the ongoing efficiency and accessibility of EDR schemes for genuine small businesses and reflect the intention that EDR is an alternative dispute resolution process for small and less complex disputes”.
The ABA concluded that it “supports simplifying the current external dispute resolution system, creating an easier ‘one-stop shop’ model and expanding the scheme so more small businesses can have complaints heard without needing to use the courts”.
[Related: Banks ‘on notice’ over SME loans]
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