Code of Conduct for Business Lending to Small and Medium Enterprises

The Code, established by Section 117 of the Central Bank Act 1989, applies to all business lending by regulated entities, excluding credit unions, to small and medium enterprises (SMEs). An SME is considered to be an enterprise that employs fewer than 250 persons and which have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million

The Code’s objectives are to facilitate access to credit for sustainable and productive business propositions, to promote fairness and transparency in the treatment of SMEs by regulated entities, and to ensure that when dealing with arrears cases the aim of a regulated entity will be to assist borrowers to meet their obligations, or otherwise deal with the situation in an orderly and appropriate manner.

This Code sets out the processes regulated entities are required to adopt in facilitating access to credit for businesses.

The Code applies  to overdrafts, loans, term loans, leasing, hire purchase and invoice discounting.

The Code excludes lending to other financial institutions, syndicated, club, or multi-lender transactions, and special purpose vehicles including vehicles established for the purposes of a particular transaction.

Regulated entities are advised that they are required to comply with the Code as a matter of law, and they must be able to demonstrate that they are in compliance with the Code.

A Regulated entity may act with all necessary speed in the case of a liquidation, receivership, examinership or similar insolvency event, or where there is reasonable evidence of fraud, terrorist connections, money laundering and/or misrepresentation.

The Code states that a regulated entity must offer its customers an option of an annual review meeting, to include all credit facilities and security.

A regulated entity must consider each application for credit facilities on its own merits.

A regulated entity must have appropriate procedures in place to assess a loan application.

Where a new application for credit is approved, a regulated entity must provide the borrower with confirmation of the credit facilities granted and the terms and conditions applying thereto, including those regarding default, together with relevant details of fees, charges and interest rates. A regulated entity should outline to the borrower the next steps to be completed to facilitate draw down.

A regulated entity must not impose unreasonable collateral requirements for providing credit facilities, having regard to the value of the credit being offered. It must not impose unreasonable personal guarantee requirements on borrowers. If a regulated entity seeks collateral or a personal guarantee to support a lending proposition it must explain clearly the possible implications for the guarantor of giving such collateral or personal guarantee.

Any enforcement of a personal guarantee over a principal private residence must be in accordance with the Code of Conduct on Mortgage Arrears.

Where a regulated entity decides to withdraw or amend credit facilities it must notify the borrower, promptly, of the proposed withdrawal or amendment. The regulated entity must advise the borrower of the reason(s) for the withdrawal or amendment.

A regulated entity must have in place procedures for the handling of arrears cases. A regulated entity must give the borrower reasonable time, having regard to the circumstances of the case, to resolve any arrears problem.

A regulated entity must ensure that all information provided under the Code is clear and comprehensible, and that key items are brought to the attention of the borrower. The method of presentation must not disguise, diminish or obscure important information.

A regulated entity must inform the borrower in advance of making changes to the terms, conditions, fees and charges relating to that borrower’s credit facilities.

A regulated entity must issue statements (or schedules or confirmations, as most appropriate to the product) at regular intervals to the borrower. The interest rate applicable to the credit facility must be clearly displayed on each statement (or schedule or confirmation).

 A regulated entity must have in place a written procedure for the proper handling of complaints with the objective of resolving the complaint as soon as possible.

For further information please contact Jim Stafford or Tom Murray on 01 661 4066 or jim.stafford@frielstafford.ie or tom.murray@frielstafford.ie