On Sunday, 11 January 2015, the Central Bank published a consultation paper (CP91) on its proposed review of the Code of Conduct for Business Lending to Small and Medium Enterprises (SMEs). The Central Bank is proposing to replace the existing Code of Conduct for Business Lending to SMEs (Code) with regulations, to extend the scope of the regulations as compared with the Code and to strengthen the protections available to SMEs in a number of areas.
The Code applies to regulated entities, excluding credit unions, when providing credit products to SMEs. It sets out a number of protections for SMEs including in the following areas: applications for credit facilities; declining/withdrawing credit facilities; financial difficulties; the provision of information; and handling complaints. The Code also sets out additional protections for “smaller enterprises” relating to the provision of information and advertisements. It became effective from 1 January 2012, replacing the previous Code of Conduct which dated from 2009.
In its consultation paper, the Central Bank proposes replacing the Code with new regulations styled the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Lending to Small and Medium Enterprises Regulations (Regulations). The Central Bank had been given the power in 2013 to transfer the legal basis of much of its supervision of the financial services industry from codes and other less formal rules to statutory instruments called “regulations”.
The Central Bank is also proposing to include lending by credit unions in the scope of the Regulations although multi- lender credit and special purpose vehicles will be excluded from their scope as is the case under the Code. Business credit cards also fall within the scope of the proposed Regulations.
Overall, the proposed Regulations are considerably more detailed than the existing Code and “aim to be more supportive of borrowers and require lenders to be more interactive”. While the General Principles stipulated in the Code have been omitted from the Regulations, this is because they are already contained in the Consumer Protection Code 2012 (CPC). In contrast, the Regulations include several of the protections set out in the CPC relating to the provision of credit to personal consumers.
The Central Bank is proposing to strengthen the protection available to SMEs by:
- requiring lenders to provide information on the credit application process and associated timelines;
- introducing requirements to assess affordability;
- requiring lenders to provide specific, written reasons for declining credit relating to the relevant credit application;
- extending the appeals provisions to include decisions on declining or withdrawing credit and decisions regarding terms and conditions;
- requiring lenders to provide information to the customer about Government supports available from or through the lender; the lender’s appeal process; and the complaints process; and
- extending the additional protections currently offered to smaller enterprises to all SMEs.
The Central Bank is also considering whether to include the concept of “not co-operating” as set out in the Code of Conduct on Mortgage Arrears 2013, in the proposed SME Regulations.
The closing date for submissions on the Central Bank’s proposals is 13 April 2015. The consultation paper may be accessed here.