On 1st July 2019, the Australian Banking Association (ABA) released a new Banking Code of Practice (BCoP), which amongst other things, requires member banks to identify potentially vulnerable customers. Whilst the BCoP is only binding on member banks, the Australian Financial Complaints Authority (AFCA) has indicated that it considers these measures good industry practice and it is likely it will apply this standard to all lenders. As a result, lenders are requiring finance brokers to provide a declaration that a loan applicant(s) does NOT fit into one of the potentially vulnerable categories as listed below.
Who does the BCoP apply to?
- Small Businesses (less than $10 million annual turnover in the previous financial year AND fewer than 100 full-time employees AND less than $3 million total debt to all credit providers.)
What is a vulnerable person?
The BCoP requires to take extra care with customers who may be experiencing one or a combination of any the below situations:
- a co-borrower not receiving substantial benefit
- age-related impairment
- cognitive impairment
- elder abuse
- family or domestic violence
- financial abuse
- mental illness
- serious illness
- accessibility issues including remote locations including indigenous customers
What does substantial benefit refer to?
Lenders will take particular care when one of the co-borrowers does not receive a reasonably proportionate legal or equitable interest in the asset being purchased OR a reasonable portion of the loan funds are used to repay other debts or obligations owing by the co-borrower.
Scenarios that once would have been accepted as fairly standard by lenders may now be more difficult to get approved due to these new onerous obligations set out by the BCoP. When your client is considering finance, these are factors that they will need to consider, particularly if one party is not going to receive a substantial benefit.