FROM August 1 a new code will apply to banks that agree to adopt it that extends many of the protections afforded to consumers to parties involved in commercial loans provided to individuals and small businesses.
FROM August 1 a new code will apply to banks that agree to adopt it that extends many of the protections afforded to consumers to parties involved in commercial loans provided to individuals and small businesses.
The requirements include:
The need to disclose fees and charges up front;
Imposing prudent lending standards on banks;
Obliging banks not to accept person as co-borrowers when it is clear they will not receive any direct benefit from the loan;
Limiting all moneys guarantees and third party mortgages;
Requiring disclosure to guarantors of recent borrower defaults and other pre-contractual materials;
Obliging banks to ensure borrowers are not present if the bank signs up the guarantors; and Prohibiting banks from enforcing guarantees unless judgement has been obtained against the borrower and remains unsatisfied for 30 days.
While the code only applies to banks that adopt it, it is a strong indication of the consumer protection that is increasingly being demanded of lenders.
All lenders in the commercial market should therefore consider whether voluntary compliance with the requirements laid down in the code may give them a competitive advantage.
Geoff Stevens, partner
9288 6926
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