2019 Banking Code of Practice: New changes small businesses will want to know about

The Australian Banking Association (ABA), together with a number of Australia’s largest banks, has launched a new set of guidelines aimed at restoring faith among banking customers following the Banking Royal Commission. 

Introduced on Monday, the Banking Code of Practice contains a number of principles which are hoped will improve small business lending among other sectors - all of which have been agreed upon by the four major banks, AMP, Macquarie and Suncorp among others. 

Coming just five months after the final report from the Banking Royal Commission, ABA CEO, Anna Bligh, stated that the new Code would be an important step in winning back the trust of the Australian public. 

“We’ve completely rewritten the rule book for Australia’s banks. The Banking Code of Practice has strong protections for customers, serious consequences for breaches and strong independent enforcement,” she said. 

“Whether it’s through your credit card, home loan, small business loan or just day to day banking, Australian customers will see tangible benefits from this new Code.”                  

Major takeaways for small business 

Loan applications

Small business loan contracts under $3 million will now be made much simpler and will contain fewer conditions. Participating banks will aim to ensure that borrowers know exactly what is required when applying for a loan, how long it will likely take before a decision is made and, if the application is rejected, an explanation as to why (where possible). 

Notice periods  

Banks will need to give small businesses who have defaulted on their loans 30 days notice before they are required to make the outstanding payment in full. 

Loan extensions 

For small business loans that don’t have a requirement for the repayment to be made in full at the at the end of a scheduled loan term (for instance, an ongoing arrangement), participating banks must provide borrowers with three months notice if they [the banks] don’t extend the loan. Borrowers will then have that three month period before they need to pay back the outstanding loan in full. 

For a full summary, check out the new Banking Code of Practice for yourself. 

Does the new code have teeth? 

While a host of Australia’s largest banks have signed up to the code, the new guidelines won’t apply to one of an increasingly popular source of small business lending: online lenders

And according to Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, there’s concern over the limited number of banks that have come on board, as well as the types of small businesses the Code will apply to.  

“As the code only applies to 19 banking groups – there are over 100 deposit taking institutions -  small businesses must first establish if the code applies to their bank and if they meet the code’s definition of a small business,” she said. 

“Under the code, small businesses are defined as having an annual turnover of less than $10 million, fewer than 100 staff and crucially have less than $3 million total debt to all credit providers.”

Carnell also challenged the strength of the code when it comes to participating banks complying with the new guidelines.          

“There have been a number of claims made in the media that this Banking Code of Practice has teeth, but clause 213 states banks need only comply with reasonable requests from the Banking Code Compliance Committee (BCCC). That calls into question the ability of the committee to be effective,” she said. 

“We will be watching very closely to see just how strongly the code is enforced, particularly as it relates to small businesses.”

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