Small business set to benefit from revised Code of Banking Practice

Michelle Hammond
01 February 2013
Startupsmart

Banks will need to give at least 10 days’ notice before making any materially adverse changes to small business customers’ terms and conditions, as part of the revised Code of Banking Practice.

The revised code, released by the Australian Bankers’ Association, carries a number of significant changes aimed at small business borrowers and people facing financial hardship.

It was released following a review and consultation process, which included the Australian Securities and Investments Commission, the Financial Ombudsman Service and the Consumer Action Law Centre.

According to ABA chief executive Steven Münchenberg, the code gives customers additional rights, on top of those in the law, and provides straightforward ways for customers to complain if they feel their bank has not met its code obligations.

Changes to the code include new and stronger financial hardship provisions, a commitment not to combine accounts or assign debt when a bank is actively considering whether a customer is in financial difficulty, and a commitment to provide information about no or low-fee accounts to customers if the bank becomes aware the customer has a concession card.

The code also covers small business customers.

As well as the existing obligations to small business customers, banks have committed to a new notice requirement that will see them normally give at least 10 days’ notice before making any necessary materially adverse changes to a small business customer’s terms and conditions.

This recommendation arose after claims that some banks had foreclosed on loans and raised interest rates without giving borrowers adequate notice to seek refinancing with other lenders.

However, the banking industry is resisting measures recommended by a Senate inquiry that banks develop a separate code of conduct for small business borrowers.

According to Münchenberg, the ABA is “a little reluctant” to set up a separate code for small business because “it can sometimes be difficult to tell if you are dealing with a customer as a small business borrower or in their personal capacity”.

All significant retail banks in Australia are signatories to the current code, including the major banks, regional and smaller Australian banks, and international banks operating in Australia.

The banks now have 12 months to make changes to their systems, processes, documentation or training to make sure they are compliant with the revised code by February 1, 2014.

The ABA understands all current signatories are working towards adopting the revised code.

“Once a bank has committed to the Code of Banking Practice, it becomes part of the enforceable contract between the customer and their bank. A breach by a bank is a breach of that contract,” Münchenberg said in a statement.

“If a customer feels that their bank has not met its obligations under the code or has fallen short of expectations, they should first complain to the bank.

“They can [then] complain to the independent Code Compliance Monitoring Committee or to the bank’s external dispute resolution scheme, the Financial Ombudsman Service, if the customer is claiming a loss.

“Both the CCMC and the FOS can investigate allegations of a breach of the code.”

The revised code comes on the back of new figures from the Reserve Bank, which says total credit provided to the private sector rose by 0.4% over December.

Over the year to December, total credit rose by 3.6%.

Business credit, meanwhile, increased by 0.7% over December, after decreasing by 0.7% over November. Over the year to December, business credit increased by 2.8%.