The Banks' Financial Abuse Guideline Now Covers Small Business Lending

The Australian Banking Association released an updated financial abuse industry guideline on 17 September, and for the first time it names small business lending as a channel through which that abuse runs. Banks are asked to build safeguards into the lending process that test whether a borrower or co-borrower genuinely benefits from the loan they are signing.

The document pulls what were separate industry resources on elder abuse and on family and domestic violence into a single 45 page framework sitting under the Banking Code of Practice. The Banking Code applies to individuals, small businesses and guarantors, so a sole trader or a company under the Code's small business test is covered alongside personal customers.

Six ways it shows up in a business

Six patterns are named. Adding someone as a director, shareholder, partner or guarantor without their knowledge, or pressuring them to resign so another person takes control. Forcing someone to sign business paperwork they have not read: loan applications, leases, supplier agreements, director declarations, sometimes with information redacted. Taking business cash or stock, running personal expenses through the business, diverting takings, or locking someone out of the accounts. Leaving a person liable for tax debts on a company they do not control. Pressuring someone to change signatories or hand over cards, passwords or app access. Transferring business assets away, or misusing someone's tax file number.

The lending safeguard runs off a rule that already exists. Under the Banking Code, a bank will not approve a loan or a limit increase where a co-borrower applies in their personal capacity, rather than as a director, partner or trustee, and will not receive a substantial benefit from it, unless the bank has taken reasonable steps to check they understand the risk, has considered why they want the loan, and is satisfied they are not experiencing abuse. What is new is the instruction to train business bankers to apply that test. The reasoning is blunt: a business banker is more likely than most bank staff to be dealing directly with the person causing the harm.

Account access is the other half

The guideline also resets expectations on third party authorities, the arrangement that lets a family member or a professional operate an account on someone's behalf. When a request form arrives, the bank should take reasonable steps to confirm the authority was not obtained fraudulently or under duress, including confirming it with the account holder separately from the third party. Banks should offer different levels of access, such as read only or a transaction limit, keep sending account information to the holder, and prompt customers to review whether an old authority still fits. An authority can be revoked at any time.

What to do with this

Start with the list. Ask your bank who currently holds an authority on each business account and what it allows them to do. Many were set up some time ago and circumstances change. Signing options deserve the same look. One to sign and two to sign are different risk positions, and the guideline says the bank should be able to explain what each one means and what happens if you want to change it later.

If you signed as a co-borrower in your own name on business debt you do not benefit from, ask the lender what it recorded on the substantial benefit question when the facility was written. Guarantors sit outside that test but not outside the guideline. Where a review finds a bank was or should have been aware of abuse at the time of lending, it should consider remedies case by case, including declining to enforce a guarantee in whole or in part where the guarantor was coerced, got little or no benefit, or did not know about the debt. Prepare that conversation with a financial counsellor or a lawyer first. The guideline points to free referrals, including the Small Business Debt Helpline.

If you do the banking in a two person business, expect more questions. A business banker asking why a partner is on an application is the intended outcome, not an obstacle.

Subject to lender approval, terms, and conditions apply.

This article is general information only and is not financial advice.