Small business borrowers alert - ASIC on EDR schemes

Are you a small business borrower? You should know about this new ASIC report on EDR schemes. The ASIC report was released on 13 June following public consultation which highlighted that:

1. simpler and lower value small business lending disputes can he handled by the lender's external dispute resolution (EDR) schemes, but
   
2. more complex and high value small business lending disputes are more appropriately addressed in court.

What is EDR? Basically it is an alternative to going to court. Using ASIC's own definition, an EDR scheme is a free, independent dispute resolution service that can help borrowers if they have a complaint or dispute with one of its members (for example, a credit provider or broker), or if borrowers are having difficulties repaying their loan. It should be noted here that, before an EDR scheme can consider a complaint or dispute, (using the above example) the credit provider or broker must be given an opportunity to resolve the dispute with the borrower directly.

The new ASIC report, together with updated regulatory guidance, refined the rules for access to EDR schemes for small business borrowers. Here are the key points of ASIC's release (extracted from ASIC's website):

1. Small business borrowers will continue to be able to take disputes with their lender to the lender's EDR scheme.
   
2. Even where the lender has already commenced court proceedings against them, if the credit contract is $2 million or less, the small business borrower will continue to be able to take the matter to the EDR scheme.
   
3. Where the loan exceeds $2 million and the lender has already commenced proceedings in a court, the small business borrower will not have access to EDR. This restriction commences from 1 January 2014.
   

It is wise to have some knowledge of how EDR schemes work. Click here to read more about EDR schemes and here to read more about ASIC's latest release.