The Australian Bankers’ Association has today released its response to the independent review of the Code of Banking Practice, supporting the vast majority of recommendations.
“The Code is central to making sure banks do the right thing by their customers,” ABA Executive Director – Retail Policy Diane Tate said.
“Significant changes will be made to the Code to raise standards in banking and deliver on the industry’s commitment to make banking better.”
Some of the changes customers can expect in a new Code include:
- Plain-English language so that Australians can better understand their banking rights and responsibilities.
- An easier way to cancel credit cards or reduce the credit limit, and a commitment by banks when offering cards to assess someone’s ability to pay the full credit limit in a reasonable time period.
- A new dedicated section for small businesses, and a commitment by banks to simplify terms and conditions and give more notice when loan contracts change.
- Increased help for people experiencing, or at risk of, financial difficulty, so they can take control of their finances.
“Of the 99 recommendations, the banking industry supports 61 in full. There are 29 recommendations that we support in principle or in part, and the remaining nine we either need more time to consider, or are not in a position to adopt,” Ms Tate said.
“There are also a number of related Federal Government reviews underway which we need to take into account before we can finalise our work on some of the recommendations.
“By accepting the vast majority of recommendations, banks are demonstrating they are taking action to change as well as being honest about the things which are more complex to resolve.
“In most cases where the industry does not support a recommendation, we have put forward an alternative that addresses the underlying intent of the recommendation.”
Ms Tate said the banking industry committed to an independent review of the Code which is now complete.
“Mr Phil Khoury, the independent reviewer, consulted widely as part of his review and it is clear the Code needs to change to meet the evolving needs of customers and the wider community.
“The new Code will have a clear commitment to ethical behaviour by banks, in a similar way that the Banking and Finance Oath demonstrates a personal commitment to high ethical standards.
“The Code will be redrafted in plain English so it is easier to read and our customers can better understand banks’ commitments to them, as well as their rights and responsibilities,” she said.
Ms Tate said the industry would work with stakeholders and other interested parties to redraft the Code.
“The industry recognises it is important for customers that we make these changes as soon as possible. We are aiming to have a new Code redrafted by the end of the year. This timeframe is ambitious, but we are determined to deliver change fast, while taking care to get it right.
“While the Code has legal effect through subscribing banks’ terms and conditions, we have heard we need to do more to give customers confidence in the Code. That’s why the ABA will work with the Australian Securities and Investments Commission on approving the Code, and on giving greater powers to the Code Compliance Monitoring Committee.
“Banks will need time to make any necessary changes to adopt the new Code. At this stage we anticipate a transition period of 12 months, but this will be revisited once we have a new Code.
“We will publish quarterly progress updates on the redraft and implementation of the Code, so customers can have confidence we’re delivering on our commitment to make banking better,” Ms Tate said.
More information, including a response to each of the recommendations, is available here.
The “not supported” recommendations are:
- Clause 28 of the Code should be amended to include a new provision that a signatory bank may, at its discretion, decide to waive a small unsecured debt if the bank is provided with evidence that the person is in long term financial hardship and the circumstances warrant a compassionate approach.
- The Code should specify that a guarantee is unenforceable if the signatory bank fails to comply with the pre-execution requirements. Similarly non-compliance with a post execution requirement means that the guarantee is unenforceable in relation to debt or costs that accrue after that time.
- The Code should be amended to prohibit signatory banks from signing a guarantor, who has not been legally advised, until at least the third day after the provision of all required information to the guarantor.
This provision should also apply to a guarantor of a small business credit facility below $5 million with an exception at the election of a sole director guarantor, a trustee guarantor or a commercial asset financing guarantor. - Clause 29 of the Code should specify that a credit facility is unenforceable against a person who is accepted as a co-debtor but who, the signatory bank should have known, was not receiving a substantial benefit under the credit facility. In the case of a credit facility for the purpose of a small business, the clause 29 obligation should only apply to a credit facility below $5 million.
- The Code should specify that a guarantee is unenforceable if the signatory bank fails to comply with the pre-execution requirements. Similarly non-compliance with a post execution requirement means that the guarantee is unenforceable in relation to debt or costs that accrue after that time.
- The Code should be amended to include a new obligation that prohibits banks from offering a credit card credit limit increase to a Code customer, other than in response to a customer-initiated specific request for a higher credit limit. The drafting should make it clear that the requirement for a customer-initiated specific request is not met by the customer ‘opting in’ to the bank making credit limit increase offers to the customer.
- The Code should be amended to include:
a) A prohibition on signatory banks charging Code customers interest on the portion of their credit card balance that is paid off by the due date.
The “additional time” recommendations are:
- The Code should be amended to prohibit a signatory bank from enforcing a credit facility against:
a) a customer who is an individual; or
b) a small business customer where the credit facility is below $5 million,
if the customer has complied with loan payment requirements and has acted lawfully.
The ABA should consult with stakeholders including the Australian Small Business and Family Enterprise Ombudsman about any exceptions, for example, to permit enforcement of a small business credit facility where an insolvency event has occurred. - Clause 29 of the Code should be redrafted to require a co-debtor to receive a “substantial benefit” under the credit facility and a signatory bank to make reasonable enquiries to ensure that this is the case (thereby reversing the position currently achieved by the words “it is clear, on the facts known to us”). In the case of a credit facility for the purpose of a small business, the clause 29 obligation should only apply to a credit facility below $5 million.
- The Code should either:
a) restrict signatory banks from charging a home loan customer for lenders mortgage insurance more than the actual cost incurred by the signatory bank net of any discount or commission paid by the insurer to the signatory bank and require a signatory bank to pass on to a home loan customer any rebate of premium that the signatory bank receives if the customer repays or refinances their loan; or
b) impose a disclosure regime whereby signatory banks disclose to their customers any discount, commission or rebate obtained by the bank at the inception of the policy and at the time of cancellation of the policy.
