Carnell Report released after "sobering" review

by Miklos Bolza06 Feb 2017
A report into small business lending practices has been released, offering 15 recommendations for the banks and the government after what has been called a “sobering” review process.
 
Originally commissioned on 31 August 2016, the Inquiry into Small Business Loans examined 23 extreme cases of poor customer experiences for business owners dealing with the banks and conducted a ‘deep dive’ into six of these. The inquiry also included a two-day public grilling of the big four banks.
 
“It has been a sobering process to review the experiences of business owners impacted by the poor practices of some members of the banking industry,” said Kate Carnell AO, Australian small business and family enterprise ombudsman, who was asked to run the inquiry.
 
The 15 recommendations in what is known as the Carnell report will address gaps in the existing regulatory environment and with the practices of industry participants.
 
For holders of business loans, the most relevant recommendations are listed below:
  • For loans below $5 million, protection must be given against surprise defaults from financial covenants or adverse change clauses
  • A minimum 30-business day notice period must be provided for all changes to general restriction clauses and covenants
  • For loans below $5 million, a 90-business day notice period for roll over must be given before loans mature (with a longer period of time offered for rural properties and complex businesses)
  • For loans below $5 million, a one-page summary of any clauses or covenants that may trigger a default or any other detrimental outcome must be supplied
The implementation of these recommendations is required by 1 July this year. Additionally, banks must also provide borrowers with a new small business standard form contract that is short and written in plain English by December 2017.
 
“The government expects the banking industry to give the highest priority to careful consideration of the 11 recommendations that focus on changes to the way banks deal with their small business customers,” said Kelly O’Dwyer, Minister for Revenue and Financial Services.
 
“The government will expect the banking industry to provide a considered response to the report, and a proposed plan of action to address the issues of concerns raised in the report, by no later than the next House of Representatives Standing Committee on Economics public hearings commencing on 3 March 2017.”
 
The Australian Bankers’ Association (ABA) praised the inquiry, welcoming the report into small business lending practices.
 
“The issues raised by Australian Small Business and Family Enterprise Ombudsman Kate Carnell in this report are important. Alongside this, the Code of Banking Practice is currently being independently reviewed in the Khoury Review,” ABA chief economist Tony Pearson said.
 
The Khoury Review is an independent review of the Code of Banking Practice announced in April last year.
 
“We expect the report of the Khoury Review to be published shortly, and we aim to respond to the recommendations, as well as those from the Carnell Review, by the end of this month,” Pearson said.
 
Related stories:
 
Ombudsman grills Big Four on SME lending
 
Ombudsman scolds major banks, is “disappointed”
 
Banks to undergo further parliamentary grilling

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