New Banking Code increases protections for small business

With the new Banking Code now in force, consumers and small business owners will be better protected should they fall into financial hardship.

The new code of practice will provide more transparency for consumers and small business owners seeking credit and deliver plain English contracts to allow borrowers to better understand their obligations.

Australian Banking Association chief executive Anna Bligh, said the new contract for small business finance would provide fairer conditions.

“It will have less conditions and it will have less circumstances in which the bank can call in the loan,” she said.

“So it will be a significantly fairer contract where the balance of power tilts more towards the business than the bank.”

The code will be enforced by the Australian Financial Complaints Authority, with consumers able to take their complaints directly to the AFCA. Bligh suggested the process now has real teeth – ensuring tangible consequences for financial institutions that do the wrong thing.

While the new Banking Code of Practice is an improvement on previous versions, it remains to be seen if it will be effective in addressing the imbalance of power held by the banks, the Australian Small Business and Family Enterprise Ombudsman Kate Carnell has said.

“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),” Carnell said. “That calls into question the ability of the committee to be effective.”

The Ombudsman said she will be closely monitoring the effectiveness of the code to see how strongly it is enforced.

“In the meantime, we are encouraging small businesses who have dealings with the Banking Code Compliance Committee (BCCC) to tell ASBFEO about their experience.

“We want small businesses to help us gain an understanding of whether this committee is doing the job that it is supposed to.

Currently, the code only applies to 19 banking groups. There are over 100 deposit-taking institutions in Australia. Carnell said in order for small business owners to be protected by the code they will need to bank with one of the 19 and meet the requirements of a ‘small business’.

“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,” said Carnell.

“As the revised Banking Code of Practice works towards improving banks’ small business lending practices, we will continue to monitor its effectiveness and to advocate for safeguards against misconduct in the hope of restoring small business’ confidence in banks.”