Banking Code of Practice – Digital Finance Analytics (DFA) Blog

Changes to Banking Code should be strengthened: ACCC

The ACCC proposes to impose conditions on the Australian Banking Association’s (ABA) Banking Code of Practice to ensure the revised Code will benefit low-income consumers and drought-affected farmers.

The ABA, on behalf of its 23 members including the major banks, has sought authorisation to amend its Banking Code in line with recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Hayne Royal Commission).

The proposed amendments aim to improve basic bank accounts and low or no-fee accounts by prohibiting informal overdrafts unless requested by the customer, and dishonour fees. The ABA is also proposing that certain types of basic bank accounts have no minimum deposits, free direct debit facilities, access to a debit card at no extra cost and free unlimited domestic transactions.

In addition, the ABA’s changes would prevent default interest being charged on agricultural loans in drought-affected areas.

After considering the ABA’s proposal, the ACCC believes that additional conditions are required to strengthen these changes.

“The proposed changes to the Code should result in public benefits, by giving customers on low incomes better access to affordable banking, and to address a source of significant harm to farmers experiencing drought,” ACCC Deputy Chair Delia Rickard said.

“While the ACCC strongly supports these objectives, we are proposing to place extra conditions on ABA members to ensure the changes effectively address the Royal Commission’s recommendations, and in turn actually deliver these public benefits.”

For example, under the ABA’s proposal, basic bank accounts could still be overdrawn without the customer’s agreement in some circumstances, and banks could continue to charge interest, in some cases at rates approaching 20 per cent, on overdrawn amounts.

“This could lead to low income customers getting into debt from overdrafts they did not agree to, which is exactly the kind of problem the Hayne Royal Commission sought to address,” Ms Rickard said.

The proposed conditions of authorisation would not allow interest to be charged in these cases, or would require any such interest charges to be repaid to the customer.

The ACCC also shares consumer groups’ concerns that the ABA’s proposed changes would not require banks to proactively identify existing customers who would be eligible for the accounts, or even to continue to offer a basic bank account at all.

To address this, the ACCC’s proposed conditions would require banks to proactively identify eligible customers, including through data analysis; inform these customers of their eligibility, and for the ABA to report to the ACCC on measures taken to offer them fee-free bank accounts, and report how many customers have taken them up.

The ACCC will also require members of the ABA who currently offer a basic banking product to continue to do so for the period of authorisation.

Feedback is invited on these issues and the proposed conditions by 14 October 2019. The ACCC’s final determination is due in November 2019.

The draft determination and more information about the application for authorisation is available at The Australian Banking Association.

Revised Banking Code Of Conduct A Small Win, But… [Podcast]

The ABA made a big splash when relaunching the revised Banking Code of Conduct which starts today, and yes it is a small win for consumers and SME’s. However, we must ask this: since when are such financial service basic hygiene issues as not charging for no service, advising before charging, considering credit card repayment capacity, speaking in plain English and offering suitable low-fee products, seen as so revolutionary?

Frankly put, these are issues which an industry which truly focused on the well-being of its customers would have long ago addressed. They did not, and were dragged towards better outcomes by the Royal Commission and public pressure.

So, yes, important baby steps, but still a massive leap is required to the desired level of customer-centricity. There is nothing bold or innovative here.

Digital Finance Analytics (DFA) Blog

Revised Banking Code Of Conduct A Small Win, But… [Podcast]

00:00 / 00:07:12

Revised Banking Code Of Conduct A Small Win, But…

So, yes, important baby steps, but still a massive leap is required to the desired level of customer-centricity. There is nothing bold or innovative here.

Australia’s banks will comply with a strong new code of practice that significantly increases and enshrines customer protections and introduces tough new penalties for breaches from tomorrow.

The ASIC-approved Banking Code of Practice represents the most significant increase to customer protections under a code in the industry’s history.

From 1 July, under the new Banking Code of Practice, banks will no longer:
– Offer unsolicited credit card limit increases
– Charge commissions on Lenders Mortgage Insurance
– Sell insurance with credit cards and personal loans at the point of sale.
Under the code banks must:
– Offer low-fee or no-fee accounts to low income customers
– Have a 3 day grace period on all guarantees to give guarantors enough time to make sure it’s the right option for them
– Actively promote low-fee or no-fee accounts to low income customers
– Provide reminders when introductory offers on credit cards end
– Simpler and fairer loan contracts for small business using plain English that avoids legal jargon
– Provide customers a list of direct debits and recurring payments to make it easier to switch banks.
Australian Banking Association Chief Executive Officer Anna Bligh said customers can expect to see a change to banking products and services immediately.

“We’ve completely rewritten the rule book for Australia’s banks. The Banking Code of Practice has strong protections for customers, serious consequences for breaches and strong independent enforcement,” Ms Bligh said.

“Banks understand they need to change their behaviour and this new rule book represents an important step in earning back the trust of the Australian public.

“The new Code will form part of every customer’s relationship with their bank and will be strongly enforced both by an independent body, the Banking Code Compliance Committee, and the Australian Financial Complaints Authority.

“Whether it’s through your credit card, home loan, small business loan or just day to day banking, Australian customers will see tangible benefits from this new Code,” she said

Financial Counselling Australia Chief Executive Officer Fiona Guthrie said the new Code was a major step up in the protections for customers, particularly the most vulnerable, and was an important milestone in restoring community trust in Australia’s banks.

“Codes like this really can make a difference because they go beyond black letter law and instead reflect the standards that an industry voluntarily commits to,” Ms Guthrie said.

“The banking industry released its first version of the banking code over 25 years ago and it is really pleasing to see that each version – and this is the fourth major revision – contains advances in consumer protection.

“Financial counsellors in particular welcome provisions around family violence, stronger protections for guarantors, better promotion of free or low fee accounts and more proactive approaches to people experiencing financial hardship,” she said.

Banks have trained more than 130,000 staff on the new requirements in the code so it can begin operating from tomorrow (1st July 2019). Information about the Code has been translated into Mandarin (simplified Chinese), Arabic, Vietnamese, Tagalog/Filipino, Hindi, Spanish and Punjabi.

The Financial Services Royal Commission asked for further changes to the Code which will be implemented by March 2020.

For more information on the new Banking Code of Practice visit ausbanking.org.au/code.

Banking Code shakeup after Royal Commission Final Report – ABA

The Australian Banking Association (ABA), says farmers, small business owners, customers living in remote areas or with limited English and Australians with basic bank accounts will receive new protections under a revamped Banking Code of Practice in response to the Final Report of the Royal Commission.

The new Code, approved by ASIC last year, introduces a range of new measures to make banking products easier to understand and more customer focussed. The Code itself is currently enforceable through the courts and the Australian Financial Complaints Authority as it forms part of a customer’s contract with their bank.

Of the 76 recommendations, 29 apply to banks, 7 to be taken forward by the Australian Banking Association with the remaining to be implemented by regulators and government.

The Code represents a stronger commitment to ethical behaviour, responsible lending, greater financial protection and increased transparency. The new changes announced today further increase protections for Australian customers.

The Code will be updated with key amendments in response to the recommendations of the Royal Commission Final Report, which outlined the need for changes in protection for small businesses and farmers and a greater focus on customers in remote areas and those with limited English.

In addition to changes to the Code, banks also support the Final Report’s recommendation (1.14) for clearer and improved practices for banks assisting farmers in financial distress.

Regarding recommendation 1.10, the current Code definition of $3m total credit exposure was reached after considerable evidence-based consideration about the likely impact on availability of credit and competition in the market. ASIC approval of this clause of the Code is subject to an ASIC review of its operation 18 months after it commences.

The Royal Commission recommendation to expand the definition from total borrowings of a business to an assessment on a per loan basis regardless of the existing borrowings is a very significant expansion on the current definition which the industry believes should be considered carefully before any change is made.

The industry has serious concerns that this recommendation may have a material impact on access to credit for small business borrowers.

In finalising the industry position on this recommendation, ABA members will model the impact on their own customers and consult with Treasury, regulators and small business groups. 

Some of the changes outlined in the table will be subject to regulatory approval and banks will work with ASIC, the ACCC and Treasury to ensure these changes are made as soon as possible.

CEO of the Australian Banking Association Anna Bligh said that the updated Code would create a stronger code for customers.

“The Royal Commission Final Report is the industry’s roadmap for earning back the trust of the Australian people,” Ms Bligh said.

“The industry has taken the report and is acting with urgency to ensure lasting reform occurs without delay.

“The Royal Commission highlighted the need for the Banking Code of Practice to be strengthened to increase protections for small business and increase the accessibility of services for customers in remote areas or with limited English.

“In addition to the changes to the Code, banks will also deliver greater assistance to farmers through clearer and improved practices when assisting farmers with distressed loans.

“The industry will be implementing these changes to our Code as soon as possible.

“This work will build upon the new Code, approved by ASIC in July last year, which delivers a better banking experience for Australian customers,” she said.

The New Banking Code Is Simply The Minimum Customers Expect

Let’s be clear, the floating of the new banking code is not bad, but is really is still setting a low bar and contains elements which most customers would already expect to see. This is not some radical new plan to improve customer experience, rather more recognition of the gap between bank behaviour and customer expectation. And it does not HAVE to be implemented by the banks anyway.

There is much more work to do. For example, how about proactive suggestions to switch to lower rate loans and better rates on deposits? What about the preservation of branch and ATM access? What about the full disclosure of all fees relating to potential loans? And SME’s continue to get a raw deal thanks to lending policy and bank practice (despite the hype).

Then the biggie is mortgage lending policy, where banks current underwriting standards are set to protect the bank from potential loss, rather than customers from over-committing.

That said, this piece from the New Daily discusses the code and calls out some of the changes.

The year 2017 saw the big banks introduce a slew of measures, from scrapped ATM fees to new ethical codes, all intended to boost their battered reputation and fend off a royal commission.

In the end these measures were not enough, and in late November Prime Minister Malcolm Turnbull folded to political pressure and called a royal commission.

Nevertheless many of the banks’ voluntary measures will significantly improve consumer experience.

In particular, the new Banking Code of Practice, a list of consumer-centric reforms written by the banks themselves, will make a number of changes that consumers can use to their advantage.

Currently before the Australian Securities and Investment Commission for approval, the new Code is likely to include recommendations by the Australian Banking Association (ABA) that will significantly benefit individual consumers, as well as small businesses and guarantors.

The ABA said that included in the Code are key changes aimed at making banking more accessible and increase availability to consumers, alongside higher transparency and increased standards.

We’ve picked out some of the key changes that could benefit the average Aussie punter.

1. Online cancellation of credit cards

Currently credit cards can only be cancelled by a phone call or written request, but only after the balances has been paid or transferred. Direct debits that are not cancelled may reactivate a cancelled credit card. So knowing in advance what direct debits are applicable will prevent this happening.

Consolidating all credit cards into a debt consolidation loan will be simpler if the borrower can provide evidence of credit card cancellation, facilitated by online cancellation.

2. Notification of when payment defaults are reported to credit reporting bodies

With Comprehensive Credit Report becoming compulsory for the big four banks from 1 July 2018 there will be the obligation not only to share credit data with other credit providers, but also report positive credit behaviour.

Keeping track of defaults and exhibiting future positive credit behaviour will be advantageous to borrowers when applying for future loans, by increasing their credit worthiness.

3. Notification of introductory credit card interest free period expiry

Transferring the balance of a credit card to a low interest rate credit card can be a smart way to pay down credit card debt but only if this can be done within the interest free period. After the period expires the credit card interest rate can revert to a much higher rate, leaving the borrower in a similar position prior to transferring to a low interest rate card.

4. Proactively identifying customers who may be experiencing financial difficulty

Financial hardship assistance programs offered by banks will be improved as well as a new commitment for banks to proactively work with their customers in financial difficulty to help prevent a situation worsening.

5. Consumers can request a list of direct debits and recurring payments made on credit card and bank accounts

As mentioned previously a cancelled credit card can be reactivated by direct debits that have not been cancelled. As more and more payments are made by direct debits, customers are becoming further entrenched with their bank, and closing an account or transferring to another bank can become unfeasible if there is not an easier way of knowing direct debits and other payments.

6. Improved fee disclosure and waiving or refunding of some fees

The removal of fees to bank statements for customers who do not have access to electronic statements, and improved disclosure of fees will save consumers money and improve their ability to manage their finances.

Businesses will also benefit with more notice of changes to loans, and simplified loan contracts that are more easily understood.

Small Business and Family Enterprise Ombudsman Kate Carnell said she was concerned the code cannot be properly enforced.

“The committee will not be fully independent and banks won’t be obliged to accept its recommendations,” she said.

“The code stipulates only that banks will comply with ‘reasonable’ requests of the committee. This means effectively that banks will only act on recommendations if they feel like it. If they don’t think the committee is reasonable they have an escape clause.

“It’s like the umpire is appointed by the home team and they don’t have to accept the umpire’s decision.”

At the same time Ms Carnell welcomed the code’s “simplified language” and specific focus on small businesses.

ABA Floats New Banking Code

The ABA says that after hundreds of hours of development and more than 50 meetings with banks and key stakeholders over the past nine months, the new Banking Code of Practice has been sent to ASIC for approval.

The Australian Bankers’ Association CEO, Anna Bligh, said this is a huge step for the industry which has voluntarily introduced a new simplified, customer focused code.

“Banks are committed to change and the new Code is stronger, broader and written in simple to understand language. It has been completely rewritten to better meet community expectations and service the needs of customers,” she said.

“The industry has achieved the ambitious task of developing a new Code only nine months after receiving the final report from independent reviewer Mr Phil Khoury.

“The new Code has been broken into ten key parts, with four brand new sections including one dedicated to small businesses and another related to making banking more available for customers and easier to access.

“The remaining six sections represent a complete restructure of important parts of the current Code,” Ms Bligh said.

Some of the changes that Australians can expect in the new Code are more transparency around products and services, and a more prominent commitment to ethical behaviour.

This includes a new deferred sales model for consumer credit insurance on credit cards, small business contracts written in plain English, and the right to close a credit card account online. In addition, customers will be notified before their introductory credit card interest free period expires, the banks will introduce ways to proactively identify customers who may be experiencing financial difficulty and implement better safety nets for guarantors.

“The new code means we are making banking easier, by making changes to processes, providing customers with more info and introducing higher standards for how banks serve their customers.

“This new set of rules and behaviours will go a long way in addressing the expectations that Australians have of their banks.

“Banks most certainly do not underestimate the challenge ahead of them and will continue to make the necessary changes and improvements that their customers expect.

The fact that the industry has accepted 96 of the 99 recommendations in some form is proof that banks are serious about change, and are currently undergoing the greatest level of reform seen in the sector in more than 20 years.

“Banks value their customers and the new Code is one more step towards providing better banking for all Australians,” Ms Bligh said.

The Code is the first industry code to be sent to ASIC for approval and was part of major industry initiatives announced in April 2016 to raise banking standards.

WHAT’S IN THE NEW CODE FOR YOU?

For individuals

Customers will be informed when a bank reports any payment default on a loan to a credit reporting body, making it easier for customers to manage their finances.

On request, customers will be provided with a list of direct debits and recurring payments made on accounts. This can go back as far as 13 months and can assist customers with managing their accounts, avoiding dishonour fees and with switching.

Improved transparency around fee disclosure by telling customers, where practical, about transaction service fees immediately before they incur the fee, helping customers better manage their costs.

Waiving or refunding statement fees for customers who do not have access to electronic statements.

For small businesses

Small business customers will be provided with a longer notice period about changes to loan conditions or a bank’s decision on whether it will continue to provide the loan facility, which will help businesses with future planning.

Simplified loan contracts that are written in plain English and are easier to understand.

Improved communication and greater transparency by banks in the use of external property valuers, investigative accountants and insolvency practitioners.

For guarantors

Ensuring that guarantors are making an informed decision after taking time to consider the guarantee documents. Guarantors, who have not received legal advice, will be required to wait three days before signing, which may help customers avoid financial abuse.

Guarantors will be notified of changes to the borrower’s circumstances, including if they are experiencing financial difficulty.