Australia’s major banks aren’t in support of an overhaul to the new Banking Code of Practice.
According to Smart Company, Commonwealth Bank, Westpac, NAB and ANZ announced this week that they are in agreement that consumer credit protection laws shouldn’t be extended to cover small business (SMB) lending. The banks added that the latest Banking Code of Practice, which will come into effect next year and has been signed for the first time by corporate regulator Australian Securities and Investments Commission (ASIC), provides appropriate regulation for SMB lending.
Last year, a new report by ASIC and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) suggested that the nation’s largest banks weren’t complying with rules to protect small business borrowers. According to the review, financial institutions (FIs) continue to use language in their contracts with small business borrowers that enable the banks to change the terms and conditions of those deals and remove themselves from responsibility for behavior with SMBs outside their contracts.
However, even with the updated Banking Code of Practice, there are critics that believe banks are still being given too much leeway in their small business dealings. For example, it allows banks to use “reasonable opinion” if there is a loan default so that they can provide less or no notice to business owners.
In fact, ASBFEO Kate Carnell argued that the updated code needed to be changed because it falls short in coverage, enforcement and the discretion afforded to banks. However, the four banks said the flexibility is needed in business lending, and needs to provide a “broad range of flexible lending solutions” to different types of SMBs.
“The enquiries and risk involved in lending to a well-established customer will be very different to that of lending to a customer establishing a new business,” NAB said. “This requires case-specific assessment of the nature of a borrower’s business, or proposed business and borrowing needs.”