The ASBFEO submission to the interim report of the Hayne royal commission noted an examination of the code that found banks can still change their risk appetite, call in loans with no notice and choose not to work with small businesses to return a loan to performing when impairment has been caused by factors outside the control of small business.
It also found that each clause that provides notice periods is offset by a clause giving the bank the right to disregard if, in their opinion, they need to.
“For example, Clause 77 says: ‘we may give you a shorter notice period, or no notice period, if: based on our reasonable opinion …’. Clause 155 says: ‘We may give you a shorter notice period, or no notice, of an unfavourable change if: a) we believe doing so is necessary for us …,” said ASBFEO Kate Carnell.
“Administration and enforcement of the code should be revisited. We want the code enforced by a truly independent body, which the Banking Code Compliance Committee is not.”
Another concern noted by the ASBFEO was the many financial service providers who do not subscribe to any code of conduct and are not members of any external dispute resolution scheme, such as the Australian Financial Complaints Authority.
Ms Carnell also recommended looking at how a code of conduct and access to dispute resolution can be applied broadly across the financial service sector.
However, she was pleased the royal commission supported the view that the small business definition of a loan facility in the code be $5 million and not the current $3 million, as was recommended in the ASBFEO Small Business Loans Inquiry.
“Importantly, the interim report has identified misconduct that breached the code or fell below community standards and expectations,” Ms Carnell said.
“When the royal commission has completed its work, we call on the government to respond to Professor Ramsay’s recommendations on a scheme for redress of past disputes which avoids costly court action.”
