The Australian Bankers' Association has released details of its new banking code of practice ahead of the royal commission into alleged misconduct by the country's financial institutions and service providers.
ABA CEO Anna Bligh
said the industry's voluntary creation of the simplified, customer-focused code over the last nine months was "a huge step for the industry". It involved hundreds of hours of development and more than 50 meetings with banks and key stakeholders. The code was sent to ASIC for approval on Tuesday (19 December).
“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,” Bligh said.
While strengthening the banking code of practice was part of the ABA's six-point plan released in April 2016, the revised code was prompted in large part by consultant Phil Khoury
's January 2017 review, which provided 99 recommendations for how the code could be improved.
The code is broken into ten key parts with four new sections, including one dedicated to small businesses and another related to making banking more accessible to customers. The remaining six sections are restructures of the existing code, Bligh said.
Under the new code, 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. Loan contracts will be simplified and written in plain English so they are easier to understand. There will be improved communication and greater transparency by banks in the use of external property valuers, investigative accountants and insolvency practitioners.
For individuals, the code ensures that customers will be informed when a bank reports any payment default on a loan to a credit reporting body; they will be notified before their introductory credit card interest free period expires; and there will be improved transparency around disclosing transaction service fees.
Banks will also be expected to introduce ways to proactively identify customers who may be experiencing financial difficulty and implement better safety nets for guarantors. Guarantors will also be notified of changes to the borrower’s circumstances, including if they are experiencing financial difficulty.
“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," Bligh said, adding that the fact that the industry has already accepted 96 of the Khoury's 99 recommendations in some form is proof that banks are serious about change.
But Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, who was consulted on a draft version of the code, said she was concerned that the code would not be properly enforced.
“The [Banking Code Compliance] 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."
“It’s like the umpire is appointed by the home team and they don’t have to accept the umpire’s decision.”
Carnell welcomed the code’s simplified language and the inclusion of a specific section for small business, but expressed concern that banks could still act unilaterally to change the conditions of a loan if there were “materially adverse changes”, such as to government policy or commodity markets.
“Changes to market conditions are often outside the control of the borrower and should not be used to penalise a small business if they continue to make all their repayments,” Carnell said.
“The code says a bank won’t default a loan because of a materially adverse change, but they retain the power to change a loan’s terms and conditions," she said. “We understood the big four banks had individually agreed to remove those clauses, so its inclusion in the code is perplexing.”
The royal commission will be tasked with reviewing the adequacy of self-regulation, including industry codes of conduct.
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