On 20 April 2016, the Turnbull Government announced a reform package to enhance protection of Australian consumers by strengthening the powers of the Australian Securities and Investments Commission (ASIC). The reform measures called for ASIC to work with the Financial Ombudsman Service (FOS) to review FOS's small business jurisdiction, in particular to look at extending to include a wider range of small business loans and increasing monetary limits and compensation caps.
The FOS terms of reference currently state that:
- FOS will only have jurisdiction in relation to a small business dispute where it concerns debt recovery against a small business in relation to a contract for a credit facility of $2 million or less (even if the current loan balance is greater than that sum). Where there is more than one facility, they cannot be aggregated; and
- there is a cap on the total value of the remedy for any claim in a dispute, which is currently $309,000.
It has been reported by the Australian Financial Review that discussions between ASIC and FOS have taken place about increasing:
- the upper limit of each small business credit facility to $10 million; and
- the compensation cap to around $1 - $2 million.
The new monetary limits have not yet been set; public consultation is expected to begin shortly.
The impact of these suggested changes upon lenders is that there is likely to be an increase in the number of small business disputes lodged with FOS, to which lenders will be required to respond.
In addition to the proposed changes to FOS's jurisdiction, there is also to be a review of the Australian Bankers' Association (ABA) code of banking practice to increase protection for small business customers. ASIC's deputy chairman, Peter Kell, has been quoted by the Australian Financial Review as saying "Suggestions that deserve consideration include a minimum deadline of 14 days for repayment in response to notices of demand and automatic provision by the bank to the borrower of valuation reports…" Earlier this month, the ABA appointed Phil Khoury, the managing director of Cameron Ralph Pty Ltd, to conduct the review.
The review will be conducted publicly in consultation with consumer and small business organisations, member banks and regulatory bodies (amongst others). A final report is expected to be published by the end of December 2016.
Lenders should watch this space carefully, as the reforms are likely to impact upon recovery and dispute resolution processes.