As expected, the Commissioner has recommended that the NCCPA should not be amended to extend its operation to small business lending. This responds to concerns that extending the responsible lending obligations would likely reduce access to and increase the cost of credit for small businesses.
However, the Government’s proposed design and distribution obligations (DDO) and product intervention powers will be extended to all products regulated under the ASIC Act. We expect some kind of consumer and small business test will be adopted, which should be aligned to one of the existing definitions in use. This means lenders to small business will be required to make a “target market determination”, which must be reviewed, publicised, enforced and monitored. A “target market determination” describes the people that comprise the target market for a product, sets out any conditions and restrictions on the distribution of the product, sets out arrangements for periodic review of the determination and specifies a number of reporting obligations for distributors.
The final report recommends that the definition of “small business” in the Banking Code of Practice be amended, so that the Code applies to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million. The effect is that the rights and protections available under the new Banking Code of Practice will be available to more small businesses. It is unclear whether the ABA will act on this recommendation. We understand the Small Business and Family Enterprise Ombudsman has also requested the ABA consider further changes to the Code.
A national farm debt mediation system is the headline recommendation in a package for agricultural loans. In addition, banks should not be able to charge default interest on agricultural loans while a natural disaster declaration is in place, and other changes should be made to the way in which distressed agricultural loans are appraised and managed.