30 June 2019
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. 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.
Contact: Rory Grant 0475 741 007
New Rights and Protections for Customers
- A delay in offering add-on insurance for credit cards and personal loans. (in effect already – 1 July 2018).
- No unsolicited offer to increase credit card limits (in effect Jan 1, 2019).
- Give reminders when introductory offers on credit cards end.
- Customers can reduce their credit limit or close their card accounts online (in effect Jan 1, 2019).
- New measures to assess a customer’s ability to repay their entire credit card limit within three years. (in effect already 1 January 2019).
- Proactive contact with customers deemed at risk of financial difficulty and a range of measures to help them.
- Telling customers if we report you for a payment default to a credit reporting body.
- A commitment to take extra care with vulnerable customers and to train staff to help.
- To help low income customers banks must offer low fee or no fee accounts and actively promote them to those eligible.
- Provide customers lists of direct debits and recurring payments making it easier to switch.
- 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 circumstances, stop charging those fees and refund any paid.
- Embedding the role of Customer Advocates in the Code.
- Taking care to ensure that co-borrowers receive a substantial benefit from a loan.
A person should not be treated as a co-borrower if they are not receiving a substantial benefit from the loan unless the bank has taken reasonable steps to ensure that a co-borrower knows the risks involved, understands why the borrower wants to be a co-borrower and is satisfied no financial abuse is happening.
A substantial benefit occurs when:
- You acquire a reasonably proportionate legal or equitable interest in assets purchased with the loan funds, or
- A reasonable portion of the loan’s funds are used to repay your debts, or other obligations owed by you.
If a person is not receiving a benefit from the loan, then they may be asked to provide a guarantee for the borrower who would receive a benefit. In these circumstances the guarantee protections apply.
New Rights and Protections for Small Business:
- Simplified loan contracts that are written in plain English and easier to understand.
- Contracts with fewer conditions for those with loans under $3 million.
- Given more notice when loan conditions change – helps with business planning.
- Improved communication and greater transparency when using property valuers and insolvency practitioners.
- If a small business, with loans under $3M, has met their loan repayment terms a bank will not take enforcement action against the business (unless they fall within a limited area including bankruptcy, broken the law or loss of a licence to continue to operate).
- Ensuring farmers can access AFCA if they do not reach an agreement with the bank through farm debt mediation.
New Rights and Protections for Guarantors:
- Better protections for guarantors to ensure they understand their obligations, including a mandatory 3 days to closely consider the guarantee if they don’t have legal to ensure they understand what they’re signing.
- If borrowers get into financial difficulty, or their circumstances change, the guarantor will be notified.
- The bank will first attempt to receive assets from the borrower before starting action against the guarantor to repay the loan.
Stronger Enforcement and Compliance:
- Strong protections for customers, serious consequences for breaches and strong independent enforcement.
- The independent Banking Code Compliance Committee will investigate alleged breaches of the Code, make findings and recommendations relating to breaches and apply sanctions.
- The BCCC can formally warn a bank, publicly name a bank for breaches and new powers include, requiring a bank to rectify or take corrective action in cases of serious breaches, ordering them to undertake a compliance review, requiring a bank to train staff, and reporting serious, systemic and ongoing issues to ASIC.
- All ABA members must agree to be signatories to the Code/It’s binding on ABA members.
- Enforceable through the courts and the new Australian Financial Complaints Authority.
“…banks can go back to their normal processes and that is working out what’s right for every single customer, on an individual tailored basis with a proper assessment. That is the best thing for the customer.”
Access to credit opens up opportunities and fulfills aspirations. Getting it right requires the right balance between consumer protections and the flow of credit.
Interviewed by AM’s Peter Ryan, ABA CEO Anna Bligh talked about the substantial drop in loan deferrals since their peak during the pandemic, falling from 900,000 to 300,000.