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Banks pledge to be more transparent and flexible in new code of conduct

by Jonathan Adams

Banks have promised to be more transparent and flexible with SME loans and change the Code of Banking Practice to ensure “commitments to small businesses are clearer”. The commitments by Australian Bankers’ Association was in reaction to the report of small business Ombudsman Kate Carnell who called for banks to give business borrowers more power in credit contracts. She recommended creating a specific section in the Code of Banking Practice to protect small business.

She also called upon the Australian Securities and Investments Commission for enforcing the code to give it more teeth. ABA chief economist Tony Pearson said on Friday, “The ABA will make changes to the code to make sure our commitments to small businesses are clearer”. He continued, “We’re looking at having a separate section for small business lending and how we can improve the transparency of loan terms and conditions”.

Ms Carnell also called for the removal of clauses in contracts that unilaterally empower banks to default loans if borrowers have paid on time. She said that banks may resist the moves by stating increased risk, resulting in increased loan pricing. But, she continued, “there is high-level evidence that these conditions are rarely triggered suggesting that no price increase is required”. Reaction from banks was yet to come.

National Australia Bank’s executive general manager of small business banking, Leigh O’Neill, said the Carnell report “has delivered a comprehensive suite of reforms following constructive engagement with the sector, and we will fully consider the recommendations in the report with a view to maximising the right outcomes for customers”. She said, “The opportunity for the financial sector to work together with government to support small business will help our customers build successful and sustainable businesses”.

“Listening to our customers and working with the industry is critical to successful, ongoing relationships with this significant group.”

Ms Carnell said many felt the committee charged with monitoring cannot award compensation or remediation for breaches.

“For the Code of Banking Practice to be effective, it must contain substantive provisions and be monitored and enforced,” she said. “Significant change is required for the code to be seen to provide protections for customers that banks will be held accountable for.”

Ms Carnell said the review “must change the code’s focus from protecting banks to protecting customers of banks. The code must be written in a way that a customer can understand what to expect from their bank and what their rights are when banks fail to meet their obligations.”

She called for ASIC approval of the code to “improve its transparency and enforcement”.

According to a report on the progress of industry reforms by independent overseer Ian McPhee, six banks have not signed the code which includes, Macquarie Bank, ME Bank, Bank Australia, Defence Bank, MyState and Qudos. He said “it would be desirable for the non-signatories to reassess their position in respect to adoption of the code”.

After Ms Carnell call for broadening of ABA’s “six-point plan” to include the reporting of progress at individual banks, Mr Pearson said the ABA “recognises the importance of customers and stakeholders having confidence in the changes the industry is making. We will ask for more detailed information in the next report [by Mr McPhee] about individual banks’ progress.”

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