Analysing the new 2019 Banking Code of Practice and its implications for individuals and small businesses.
29 May 19
From 1 July 2019, the Australian Banking Association’s (‘ABA’) new Banking Code of Practice will come into effect and give rise to a new range of measures focused on safeguarding the public’s dealings with banking products and services. Since its inception in 1993, the ABA’s Code of Practice has created and maintained a framework for best banking practice standards in the banking industry. For over 20 years it has provided greater protection to the public by working with government, regulators and other stakeholders to ensure that banking is affordable and accessible to all Australians.
The new Banking Code of Practice (‘New Code’) introduces measures aimed at improving the rights, protections and understanding of customers. The ABA also intends to update the new Code to take into consideration the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s Final Report key recommendations (‘Royal Commission’).
All ABA member banks are required to adopt the New Code. The New Code will be enforced by an independent monitoring body – the Banking Code Compliance Committee (‘BCCC’). Any person can report a breach of the New Code to the BCCC.
With respect to individuals, key changes in the New Code include:
- the abolishment of fees and commissions on lenders mortgage insurance;
- notifications when an introductory credit card offer is expiring;
- time restrictions on offers of credit insurance for credit cards and personal loans;
- stricter credit assessments including measures regarding a customer’s ability to repay their entire credit card limit within five years;
- greater promotion of affordable banking products;
- proactive contact with and assistance for vulnerable customers or customers facing financial difficulty; and
- assisting people on low incomes to select the right accounts for them (i.e. low or no fee accounts for pensioners and concession card holders).
In summary, the new provisions hope to provide greater protection for vulnerable customers, customers in financial difficulty, customers on low incomes and Indigenous customers.
For small business, the new Code of Practice:
- redefines a ‘small business’ as customers with an annual turnover of less than $ 10 million in the previous financial year, fewer than 100 full-time equivalent employees and less than $3 million total debt to all credit providers;
- improves protections for small business borrowers by expanding on the existing unfair contact terms legislation to include prohibitions on a range of unfair and one-sided terms in contracts;
- seeks to simplify loan contracts by requiring contracts to be written in plain English;
- extends the notice period for when a bank can change the conditions of a loan;
- restricts the enforcement of loans for non-monetary defaults to specific circumstances; and
- establishes greater standards of communication and transparency for situations where external valuers, investigative accountants or insolvency practitioners are appointed.
In summary, the new provisions hope to provide greater protection in relation to responsible lending and unfair contract terms for small businesses.
Following the Royal Commission’s Final Report recommendations, the ABA has indicated that it will support and to implement the following recommendations:
- Rec 1.8 – provide that banks will work with customers in remote areas or who have limited English to identify ways for them to undertake their banking;
- Rec 1.8 – ban informal overdrafts on basic bank accounts;
- Rec 1.8 – abolish dishonor fees on basic bank accounts;
- Rec 1.8 – ensure banks will follow AUSTRAC’s guidance about the identification and verification of those identifying as of Aboriginal or Torres Strait Islander heritage;
- Rec 1.13 – amend the code to end charging default interest in areas declared to be affected by drought or other natural disasters; and
- Rec 1.15 – introduce enforceable provisions of the code, identified and agreed with ASIC, and backed by legislation.
Practical implications of the New Code
Generally, the New Code reflects a move towards higher ethical standards through responsible lending, transparency and the protection of vulnerable customers. More importantly, unlike past versions, the new additions of the BCCC as an independent monitoring body and the Australian Financial Complaints Authority as a dispute resolution scheme will create greater accountability and more certain outcomes for customers.
Reinforcement may be coming
To complement the new Code of Practice, the ABA has recently initiated a public consultation into vulnerable customers such as those at risk and subject to elder financial abuse, long term illness and domestic violence. The ABA hopes this consultation will result in the establishment of new industry guidelines focused on supporting these individuals. One significant planned initiative will place emphasis on adapting the design of products and support services to suit those facing adverse circumstances. In any case, both the New Code and public consultation reaffirm the ABA’s willingness to spark change for the benefit of all banking customers.
A copy of the New Code can be accessed on the Australian Banking Association website at www.ausbanking.org.au/policy/banking-code/.
This article was written by William Buisman of Salvos Legal. Salvos Legal is an award-winning social enterprise that is experienced in not-for-profit, all areas of commercial, property and migration law. All of its earnings from its services are going to fund the Salvos Legal (Humanitarian) which provides pro bono services to the community.