Many banks have taken steps to improve security for loan guarantors, but suggestions for improvement are not being "adequately considered" by others.
A 2021 Banking Code Compliance Committee report found banking practices did not always provide adequate protection for those who were in the process of guaranteeing a loan, offering 23 recommendations for improving security.
Under the Banking Code, banks commit to obligations designed to safeguard people who act as guarantors.
The code's 2023 Guarantees Follow-Up Report, examines the extent to which banks had considered these recommendations and implemented them, where appropriate.
It found that many banks had made "meaningful changes" and are now offering:
Committee chair Ian Govey said it was "encouraging" to find banks have made "significant progress".
"These are crucial improvements in industry practices that will help banks provide important protections for people who guarantee a loan," he said.
"The improvements really emphasise the importance of our work monitoring the code and looking into practices of banks."
While the improvements were significant, the report noted there were still areas that needed attention.
Three recommendations for better practice from the 2021 report had not been adequately considered by all banks, it found.
The report highlighted the following areas of concern:
Mr Govey stressed that the committee expected banks to consider all its recommendations carefully.
"We make our recommendations to improve and strengthen practices beyond minimal compliance with the Banking Code which, in turn, helps to enhance compliance and consumer protection," he said.
"This is vital for guarantors, especially for people who may be experiencing vulnerability."
To build on progress banks have made, the committee offered additional recommendations in its follow-up report, including:
"Continuous improvement is central to our focus, and we want to see banks strengthen their processes and controls on guarantees," Mr Govey said.
In the 2021-22 financial year, guarantees held by banks that subscribe to the Banking Code of Practice supported $68 billion worth of loans.
To download the full report click here.
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