New banking code should resolve power imbalance issues

The revised Banking Code of Practice has offered some positive initiatives for small business however there are still unresolved issues regarding power imbalance and dispute resolution, according to the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell.

Carnell, who was consulted on a draft version of the code which was provided to the Australian Securities and Investments Commission (ASIC) this week for approval, said that the code would not be enforced by a proposed Banking Code Compliance Committee.

“This means effectively that banks will only act on recommendations if they feel like it,” she said.

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“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.”

Another concern was that the banks could still “act unilaterally to change the conditions of a loan if there were materially adverse changes”.

The changes could relate to government policy, commodity markets and weather conditions, 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,” she said.

Carnell also 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.

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