10 October 2018
10 October 2018
ANNA BLIGH: It is now almost two weeks since the royal commission handed down the interim report. Banks have been considering that report in great detail. While it is clear that the commission is yet to reach final recommendations on a number of matters, it is equally clear that there are some issues that demand immediate action. To this end, today I am announcing that the banking industry is addressing two of the most serious concerns raised by the commission.
Firstly, an end to fees for no service. It is always been wrong, always, for organisations to charge fees without providing a service. Today the industry is putting beyond doubt that this practice has no place in Australian banking. Banks will change the way that they manage ongoing financial advice. They will proactively contact customers to confirm what advice, if any, is required, and only charge when it is provided.
The Banking Code of Practice will also be changed to ensure that fees for no service are not made for an account when a customer dies. Once notified of a customer’s death, banks will proactively identify fees that are for products and services that can no longer be provided in the circumstance, stop charging those fees, and refund any that were paid.
Secondly, today I am announcing that the industry will throw its full support behind any changes to the law which will end, once and for all, grandfathered payments and trail commissions in financial advice. It is clear, and the commission makes it clear, that these grandfathered provisions are not in the interests of customers, and it is time for them to cease. Right now, banks are working with customers to refund anyone who was charged a fee where no service was provided. The latest ASIC estimates indicate that customers could receive more than $1 billion in refunds. There is much more work for Australian banks to do, but banks are determined to learn every lesson, to fix every problem, and to repay every cent. Thank you.
QUESTION: I presume that the Code of Practice does not have any punitive aspect to it, that it is purely something that they sign up to and agree to. Are you asking the Australian public to really trust the banks on this one?
ANNA BLIGH: The Banking Code of Practice is binding on signatory banks and it is enforceable. The Banking Code of Practice can give customers a right to take a matter to the new financial- the new Financial Complaints Authority, who can order banks to repay, if they haven’t done so already, or can take other action against the bank. So the Banking Code of Practice is very much enforceable. Putting these provisions in the Code of Practice gives customers a right to receive these entitlements, and if they fail to do so, to have that actioned against the bank by a complaints authority.
QUESTION: Culture is identified as the root cause of a lot of the problems that were identified during the royal commission. What’s the ABA doing to address banking culture overall?
ANNA BLIGH: There are many issues that go to the heart of culture in every organisation, including banks, and many of those issues have been identified in the royal commission’s interim report. Banks, through the ABA, right now working through those issues with a view to- responding to the commission’s questions, that submission will be made in due course to the commission. I would expect that the commission will make that submission public, and the means of the entire industry will be cleared for the Australian public.
QUESTION: That doesn’t go forward until July, next year. Does that mean the big banks are just going to continue their behaviour until then?
ANNA BLIGH: Banks have already begun the process of refunding and compensating customers. The Banking Code will need the change made, and we have written to ASIC seeking their approval. But banks can start doing this right now, and many banks are in the process, as I said, of already compensating customers who’ve been affected. There is more work to be done in that compensation area, but banks will not be waiting ‘til next year, and they won’t be waiting on the royal commission report on the consumer fees for no service. It is over, and banks have started the process of refunding customers.
QUESTION: On the issue of fees to the dead, what are your estimates on the amount that’s been charged to dead people, and how does that money get paid back practically, to an estate or otherwise?
ANNA BLIGH: Look, I’m sorry, I’m not in a position to give you an estimate on that, I just don’t have that data. What I can say is that, when somebody that you love dies, it may be a matter of 24 hours before you tell the bank, it may be a matter of weeks or even months before a bank is notified. In those circumstances, sometimes, fees may be charged because the bank is simply unaware that the person has died. Now however, the code will make absolutely clear, that the minute they are notified they will go through the account and any fees that should not have been charged will be refunded. And that is an entitlement that customers had, banks failed to do it, that’s a matter that they can have enforced.
QUESTION: We were told fees for no service was pretty minor initially. It’s now blown out to almost a billion dollars. Does it concern you that we don’t actually know the extent of the fees for the dead, given the capacity to draw fees, especially from superannuation funds that are sitting there?
ANNA BLIGH: What we know is that there have been fees charged for no services in literally thousands of cases, and that it is totally and utterly unacceptable. It’s always been unacceptable, it’s always been wrong, and when something is just wrong, we should just fix it. And that’s what today is about.
QUESTION: What does it say about the banking industry in general that it’s taken this long for the governing body to put a line through fees for no services, say we can’t do it, especially after criminal chargers are being floated in royal commission hearings. I mean, you’ve known about this issue for a while now, why has it taken this long?
ANNA BLIGH: ASIC has been looking at the issue of fees for no service for some time. What is clear is the royal commission has put beyond doubt that this practice is widespread, much more widespread than people understood, and affects thousands more customers than originally appreciated. What we now know is that banks are in the process of refunding customers who’ve paid these fees when they shouldn’t have, when they didn’t need to, and where services weren’t provided. We know that the amount that customers will see refunded to them is likely to escalate beyond a billion dollars.
QUESTION: The cynical view of this is that the banks are now trying to get out ahead of the royal commission and any punitive findings it would make at the end of- well, start of next year. What do you have to say to that? Have the banks actually changed or is this just the banks trying to get away with it?
ANNA BLIGH: I don’t think there’s any doubt whatsoever that commissioner Hayne has conducted a very thorough, a very tough, and a very rigorous examination of banks, and I think we would expect to see the final report front up to tough issues in the same way that the interim report had. Commissioner Haynes’ interim report makes one thing very clear when it comes to fees for no service, and that is, in his words, it is just wrong. And if it is just wrong, then we should just fix it. This is one where we don’t need to wait to be told to fix it. There are other matters that are more complex, that the commission will find on and we’ll have to see what the Government says in relation to any particular changes. That’s for down the track, but this one needed to be fixed, and now is the right time to do it.
QUESTION: Should we expect any service changes to the code of practice post the royal commission, especially considering small business loans when the reviewer you hired to do it, Phil Khoury, called your excuse to reduce the debt ceiling down to $3 million from $5 million weasel words, and you have Kate Carnell coming out against it as well, and even AFCA in its consultation last year said small business loans should be classified as anything up to $5 million. Should we expect changes in that regard as well, or not?
ANNA BLIGH: There are a number of issues affecting individual customers as well as small businesses raised in the interim report. Banks are currently working their way through the detail of that. These two are absolute standout items that needed immediate action, many of the other issues require more thoughtful and careful and rigorous time to get the right response. We will make that response to the royal commission on the date that it’s required by, the end of October, and that will be, I would expect, in the public arena for everybody to see the bank’s position on these things.
QUESTION: On the issue of grandfathering, as it stands, for example, the Commonwealth Bank yesterday said it would pay back those grandfathered commissions, but they have to actually continue to pay those commissions to those financial advisors, because they’re obliged to do so under the contract. What does it take for legal changes? What changes actually need to be made in order to stop those payments? Is it just a matter of introducing a bill to Parliament, saying these payments no longer need to be made?
ANNA BLIGH: The payments concerned, or the payments in relation to grandfathered provisions are protected by those grandfathering arrangements in sections of the Corporations Act, and it is- it would be required for the Government and the Opposition to support legislation that would remove those protections. In doing so, they should I think gift some consideration to what an appropriate transition period should be, but I think after five years, it is time for them to end. It was identified five years ago that these are not in the interests of customers, it was expected that they would wither on the vine if they were grandfathered. That hasn’t happened. It’s time for firmer action. Many banks have now voluntarily ceased the practice. But banks make up 30 per cent of the financial advice industry. If we want to see customers protected, everywhere, no matter who they invest with or who they get advice from, we need to see the legislation change, and banks can give that process their wholehearted support.
QUESTION: Is it just the big four and the littler banks, or does it include things like AMP? In relation to the fees for no service changes and the Code of Practice?
ANNA BLIGH: The Code of Practice covers the entire industry, well, covers all of the members of the ABA, which is all the banks [indistinct]. So every bank is required to- any bank that wants to be a member of the Australian Banking Association is required to sign the Banking Code of Practice and be bound by it, and all members of the association have indicated they would do that.
QUESTION: The interim inquiry said from the Australian Banking Association to ask COBA to adopt ABA- the ABA Code of Practice which they did a couple of weeks ago when you had to come out today, make some pretty serious adjustments to it?
ANNA BLIGH: I think it’s important that all parts of the finance sector, whether they are banks or other sorts of financial institutions, do have enforceable codes of conduct that go to matters that may not be appropriate for legislation. In fact, many parts of the sector that aren’t banks or aren’t part of the ABA already have their own codes of practice. I think there are some very important and significant improvements for customers in the new Banking Code, and I would encourage other parts of the sector to look at that and see which of those would be the most appropriately offered to their customers. If we’re going to protect customers, it doesn’t matter which door of a bank they walk through, whether it’s a small bank or a big bank, they should get the same protections.
QUESTION: You called it the day of shame for the banks when the interim report came out, is this an attempt at fixing the problem, how would you describe it, is it enough?
ANNA BLIGH: There is a lot more work for banks to do, but today marks two very important steps in the right direction. The interim report of the royal commission have some very, very tough messages for banks. I think the Australian people want to know that banks have heard those messages, and they’re acting on them, and that’s what today’s announcements do.
This is the version of the Banking Code of Practice that takes effect on 1 March 2020. It is currently awaiting ASIC authorisation.
Today’s release of ASIC’s updated RG 209 Credit Licensing: Responsible lending obligations is an important milestone in clarifying responsible lending obligations for banks. CEO of the Australian Banking Association Anna Bligh said that the updated RG 209 would provide clarity to banks on ASIC’s views on what responsible lending obligations require before offering credit to… Read more »