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New banking code a win for customers

Anna Bligh, Australian Banking Association

Banks will abolish some fees, make it easier for customers to switch banks and be more proactive in dealing with customer in financial difficulty, under the terms of a new Banking Code of Practice.

The Australian Banking Association announced last week that its new Code, which will take effect in July next year, has been approved by the Australian Securities and Investments Commission.

There are a number of measures in the new Code. They include:

  • banks will abolish fees and commissions on lenders mortgage insurance and will provide a fact sheet on key policy features if you require insurance:
  • a delay in offering add-on insurance for credit cards and personal loans;
  • banks will issue reminders when an introductory credit card offer is about to end;
  • new measures to assess a customer’s ability to repay their entire credit card limit within five years;
  • proactive contact with customers deemed at risk of financial difficulty, with measures in place to help them;
  • active promotion of affordable banking products;
  • assistance for people on low incomes to pick the right accounts for them, such as low or no-fee accounts for pensioners; and
  • banks will give customers lists of direct debits and recurring payments, making it easier for them to switch banks.

The Code is a set of voluntary undertakings that signatory banks make to the community. It is an acknowledgement by signatory banks that they are prepared to hold themselves to higher and broader standards than imposed by the law.

Code provisions address bank accounts, bank transfers, loans, credit cards, terms and conditions, account statements, financial difficulty, debt collection and dispute resolution.

Australian Banking Association chief executive Anna Bligh says: “The Code represents a stronger commitment to ethical behavior, responsible ending, greater financial protection and increased transparency.

The ABA has 25 member banks, of which 13 banks groups are signatories to the current version of the Code, which took effect in 2013. There are some signatories to an earlier version. Some member banks do not have services that would fall under the code and some of the newer members are mutuals that are subscribers to the Customer Owned Banking Association Code.

For the first time, the Code includes a section covering small business lending.

Changes to the Code follow a review of the existing Code, which has been in force since 2013, by Phil Khoury, the managing director of Cameron Ralph.

In his review, Khoury recommended improved information and transparency for customers. He said his consultation revealed a strong feeling that there was insufficient support for vulnerable consumers.

He called for some restrictions on the way credit card credits are marketed and provided, including a more responsible approach to credit limit increases, and making it easier for customers to reduce or cancel their credit card accounts.

On borrower default, he recommended giving more help to borrowers who are in trouble with their credit to give them a chance to put things right, including better access to information that would assist them.

“In the area of financial difficulty, I have recommended more effort in the area of prevention – to proactively identify customers at risk of financial difficulty and to offer them assistance to avoid their circumstances deteriorating,” Khoury’s report says.

Khoury says the area of terms and conditions is where a good deal of community’s mistrust arises. “Excessively legalistic terms and conditions, provisions that give the bank what seems to be unfair power, fees that are seen to be hidden or out of proportion all contribute to a sense that a customer cannot trust their bank,” his report says.

The mandate of the current code monitoring mechanism, the Code Compliance Monitoring Committee, was seen to be inadequate. Khoury recommended a strengthened role.

“Many comments pointed to the absence of sufficient sanctioning power and the “nvisibiity of the CCMC,” he says.

The Code Compliance Committee has been given increased powers under the new Code. It can require a bank to rectify or take corrective action in cases of serious breaches, ordering them to undertake a compliance review. It can also require a bank to train staff and report serious, systemic and ongoing issues to ASIC.