The Australian Banking Association (ABA) has advised that the new Code of Banking Practice, approved recently by the Australian Securities and Investments Commission (ASIC), should be adopted by all lenders, including banks and non-bank lenders that are not ABA members.
The banking industry body noted that it has presented this recommendation to the financial services royal commission.
The new code, set to come into effect on 1 July 2019, includes new rights and protections for customers, small businesses and guarantors, as well as stronger enforcement and compliance. The intention of the code, which is not legally binding, is to encourage ethical behaviour and responsible lending, while improving transparency and providing greater financial protection, the ABA said.
ABA chief executive Anna Bligh claimed that member banks have already begun lifting their standards to comply with the code, with customers as “the big winners”.
“Initiatives such as reminders when introductory credit card offers are ending, proactive contact with customers who might be at risk of financial difficulty, and simple, easy-to-understand contracts should be adopted across the entire industry,” Ms Bligh said.
“Particularly for small business, every lender, including building societies, credit unions and others, should give sufficient notice when loan conditions might change to help with future planning.”
The CEO explained that while there are many lenders in the market offering similar products, the standards are different, which he said “creates confusion for customers and a loophole in protections”.
“These common standards for customers could be achieved by making membership of an ASIC-approved code, such as the ABA code, a requirement of a licence,” Ms Bligh said.
“While we fully expect further changes to be made to banking following the final report of the royal commission, it’s important that all lenders, such as credit unions, building societies and others adopt the same rigorous standards to ensure there is consistency across the industry.”
The banking code was approved by ASIC after months of disagreement with the ABA on the definition of small business, as highlighted in the financial services royal commission, but it was given the green light on the condition that an independent review of the definition of a small business is conducted within 18 months of the code’s commencement.
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, had welcomed ASIC’s approval, but expressed her discontent with the code’s definition of a small business.
“We are disappointed the cap for small business loans is still set at a total loan facility of $3 million, as we had recommended a credit facility of at least $5 million which would encompass capital-intensive small businesses such as farms, building and manufacturing,” Ms Carnell said in August.
Ms Carnell was pleased that ASIC will monitor the extent of the code’s coverage of small business with data collected from banks and AFCA and will publish that data every six months.
“We will be keeping a close eye on those figures, with particular focus on industries we think require a higher lending cap, and also on ASIC’s work on the review of the small business definition,” Ms Carnell said.
[Related: ASIC approves new banking code]