Reports indicate loan sharks are ripping off small businesses, charging them up to 140% interest on loans through a number of loopholes on our regulations. The contracts are often impossible to understand and leave mum and dad shops struggling to keep their head above water.
I asked the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) about this wave of dodgy activity and to see what he was hearing in complaints from businesses.
Transcript
Senator ROBERTS: Thank you for appearing. Firstly, I want to thank you for always being a very clear and articulate advocate for the small businesses in this country. Without them, this country dies. I think many people forget that. Is the ombudsman aware of the recent ABC coverage of small businesses who have suffered when entering business loans?
Mr Billson: Yes.
Senator ROBERTS: Are you able to elaborate on some of the key protections that are afforded to consumer borrowers under the National Consumer Credit Protection Act?
Mr Billson: I was a bit worried that after your opening sentence there’d be a ‘however’—thankfully, not.
Senator ROBERTS: No. There’s no ‘however’.
Mr Billson: A lot of small business borrowings aren’t covered by those consumer protections. There is a set of arrangements about diligence and a capacity to repay. To put it simply, a lot of small businesses borrow with the aim to change their circumstances, whereas the consumer framework looks at capacity to service. Having said that, there are then codes that sit around it—the banking code—and there’s a code subcommittee particularly focused on small and agribusiness lending. AFCA is involved as well, where the lender has agreed to be bound by the AFCA scheme, so where a dispute or a grievance arises they can go to AFCA.
Senator ROBERTS: This is consumer?
Mr Billson: No, this is specifically about small business. And then we deal with what I call fringe financiers. There are quite a number of financiers who are outside the AFCA framework that can behave quite appallingly, and we try and seek a resolution to those circumstances, mindful we have no powers to direct a particular outcome.
Senator ROBERTS: Which of the key protections that are afforded to consumer borrowers are not available to small business borrowers?
Mr Billson: There’s the responsible lending provision—capital ‘r’, capital ‘l’—where there’s a duty to look at expenditure patterns and the like for consumers. Those things aren’t expressly required of lenders to a small business. Some apply a similar framework. There are certain diligence expectations, and then there are safeguards and protections captured by the banking code.
Senator ROBERTS: Are you aware of small business borrowers paying effective interest rates up to 140 per cent?
Mr Billson: We are aware of some examples. We’ve had other examples where punitive penalties have been applied. We’ve even had examples where some borrowers have approached a broker to look at finance options, not proceeded with the arrangement and then the broker’s introduced them to a lender that’s had quite extraordinary terms and conditions, and, even though they haven’t proceeded with that interest in accessing finance, the financier has then said, ‘Here’s a several thousand dollar bill you can pay, and if you don’t pay that, we’ll put a caveat on your home.’ Some of that outrageous conduct, we raised through FRAG, the Federal Regulatory Agency Group—a group that I chair, looking at various regulators and what can be done about these things for those people that sit outside things like the AFCA scheme and aren’t responsive to the banking code and other safeguards.
Senator ROBERTS: Are you aware of small businesses taking out high-interest business loans because of tax debts? Can you comment on that?
Mr Billson: I saw reports of that. If I could check with Ms Collins—I don’t believe we’ve had any particular cases of that character, but we are aware of reports of it. We are also aware that a number of small businesses are feeling very distressed about the return to more regular tax debt recovery activities by the ATO. We also work closely with the Small Business Debt Helpline. Interestingly, 30 per cent of the small businesses seeking help from the Small Business Debt Helpline have been in business for more than 10 years, so there’s something happening, and it’s some of the headwinds I pointed to in my opening remarks, which I understand are being circulated.
Senator ROBERTS: In your experience in assisting small businesses, can you offer a view on what would be the consequences for small-business borrowers if the National Consumer Credit Protection Act were extended to cover small-business loans?
Mr Billson: My concern would be that it may further limit access to credit at a time when too many small businesses already explain that they have difficulty accessing the finance that they need. Finance is the oxygen of enterprise, and if we make it too hard to get, the consequence is that we constrain that economic activity. A number of other mechanisms provide some safeguards—the Australian Banking Association has lodged a proposal for a revised banking code. We’re very active in trying to make sure that has appropriate safeguards in it for small-business borrowers. The other part of our concern is about lenders who operate outside those more established channels, and that’s more often the type of matter that’s raised with our organisation.
Senator ROBERTS: Thank you, I appreciate your succinctness.
Thank you for addressing these vitally important topics
Ombudsman Mr Billson is a keeper as he answers questions 👍