20 December 2017
New banking code – the umpire’s decision isn’t final
The revised Banking Code of Practice has some positive initiatives for small business but there are unresolved issues with power imbalance and dispute resolution.
That’s the view of Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, who was consulted on a draft version of the code which was provided to ASIC this week for approval.
Ms Carnell said she was concerned the code could not be enforced by a proposed Banking Code Compliance Committee.
“The committee will not be fully independent and banks won’t be obliged to accept its recommendations,” she said.
“The code stipulates only that banks will comply with ‘reasonable’ requests of the committee.
“This means effectively that banks will only act on recommendations if they feel like it. If they don’t think the committee is reasonable they have an escape clause.
“It’s like the umpire is appointed by the home team and they don’t have to accept the umpire’s decision.”
Ms Carnell said she welcomed the code’s simplified language and the inclusion of a specific section for small business.
But she expressed concern that banks could still act unilaterally to change the conditions of a loan if there were “materially adverse changes”.
Such changes could relate to government policy, commodity markets or weather conditions.
“Changes to market conditions are often outside the control of the borrower and should not be used to penalise a small business if they continue to make all their repayments,” Ms Carnell said.
“The code says a bank won’t default a loan because of a materially adverse change, but they retain the power to change a loan’s terms and conditions.
“We understood the big four banks had individually agreed to remove those clauses, so its inclusion in the code is perplexing.”
Ms Carnell criticised the code’s definition of a small business loan as being a total debt facility up to $3 million.
“I want to see the limit raised to $5 million, which would be consistent with the Khoury Review recommendation and the threshold for matters to be heard by the new Australian Financial Complaints Authority,” she said.
“In relation to farm debt mediation, I’m pleased the banks have agreed that matters which fail to be mediated can progress to external dispute resolution.”