A new Banking Code of Practice (The Code) came into effect on 1 July 2019. It incorporates multiple changes to rules first introduced in 1993 and was last updated in 2013. It’s an improved set of enforceable standards that customers, including small businesses, can expect from the 19 participating Australian banks and their subsidiary divisions. It provides safeguards and protections beyond those covered by Australian law.
New features of the Code in 2019
The main additional provisions of the Code are:
Customer transaction data portability, - making switching banks easier
Transaction fee changes to be notified in advance
Extra care towards vulnerable customers - identifying those likely to experience financial hardship
Better protection and information for loan guarantors
Basic low-fee or no-fee accounts to be available
Easier management of credit cards - with regard to introductory offers and credit limits
Small business banking improvements - including simplified loan contracts, longer notice periods and greater transparency
Stronger Code compliance committee - supporting investigation into alleged breaches
New Code section for small business
The 2019 version of the Code has a specific section (Part 6) covering ‘Lending to small business’. The Code defines a small business as having fewer than 100 full-time equivalent employees and a turnover of less than $10 million in the previous financial year, as well as less than $3 million in debt.
Lending to small business
To simplify loan applications, banks will:
Clearly and/or explain what information is required from the customer
Say how long it will take them to make a decision about granting the loan
Provide a plain English document setting out the loan contract’s key terms and conditions
Explain their reasons for declining a loan application (‘if appropriate’)
Notice periods for loan default enforcements
Specific enforcement notice periods will apply to small business loan defaults. For example:
30 days’ notice will apply before a bank commences enforcement proceedings
Shorter periods only apply if borrower is insolvent, bankrupt or under administration, or has acted outside the law
Enforcement proceedings will not be taken for ‘non-monetary defaults’ except in clearly-defined circumstances which have a material impact on the lender
Banks must provide three months’ notice if they decide not to extend or refinance a loan which is not required to be fully repaid at the end of its scheduled term (e.g. an ongoing arrangement like an overdraft or line of credit).
Use of property valuers, investigative accountants and insolvency practitioners
Below are some of the new rules which may only apply in the worst case scenario of a loan default. It is however, good to know that your rights will be protected in all circumstances.
Banks will use only suitably qualified valuers, investigative accountants and insolvency practitioners
Banks will explain why they are having a property valued
Steps will be taken to manage conflicts of interest where investigative accountants are subsequently appointed as receivers
Contact your finance broker for more details
If you’re still not sure how these new loan arrangements will affect your business, your finance broker can help. Get in touch with us and we’ll be happy to provide a more detailed insight into the possible impact in your specific circumstances.
NOTE: The next release of the ‘Banking Code of Practice’ is expected within March 2020.