The banking industry has committed to a package of reforms aimed at protecting consumer interests, increasing transparency and accountability, and building trust and confidence in banks, particularly in regards to responsible lending.
In April 2016, the banking industry announced that a reform program would be going ahead, and a final report on the review of the Code of Banking Practice (Code) has since been released by independent consultant Philip Khoury.
In response to the 99 recommendations put forth by Mr Khoury, the Australian Bankers’ Association said, “While the Code is a well-regarded customer charter on banking standards, the industry accepts that parts of the Code may no longer be fit for purpose and need to evolve to reflect the changing needs of our customers and the wider community as well as the banks.”
“The industry has heard from our customers and stakeholders that banks need to change how they go about doing their business…the industry will be making fundamental changes to the Code to fulfil this objective, and we are determined to deliver change fast, while taking care to get it right,” it said.
The ABA said that the Code will now contain a more prominent and clear commitment to ethical behaviour by the banks.
In regards to responsible lending in particular, the review made five key recommendations on how the Code should be improved – all of which are supported by the ABA:
· The Code should give prominence to the banks’ commitment to lend responsibly by including this in ‘Principles’ that appear at the front of the Code.
· The Code should rename current clause 27 as “A responsible approach to lending” and redraft it to use clearer, more modern language. The new clause should oblige banks:
a) To review the applicant’s financial information, situation and requirements carefully and prudently and
consider the application on its merits; and
b) In general, only lend amounts that the bank believes the applicant can reasonably afford to pay.
· The Code should make explicit that the obligation in current clause 27 is owed to a guarantor, not just the borrowing customer.
· The Code should be amended to include a new provision that obliges signatory banks to provide an applicant for consumer credit, with the bank’s ‘not unsuitable assessment’ prepared in accordance with National Consumer Credit Protection Act 2009 Part 3-2. This document should be provided free of charge, and as a matter of course, prior to the customer signing the credit contract.
· The Code should be amended to include protections for reverse mortgage customers that match those set out in clause 8 of the Customer Owned Banking Code of Practice.
Other key recommendations were made regarding credit card lending, credit contracts and borrower default, joint account holders, guarantors, terms and conditions, fees, sales practices, customers with special needs, complaints handling and financial difficulty – most of which are supported entirely, in part or in principle by the ABA.
The review’s final recommendation is for the Code to be submitted to ASIC for approval once it has been redrafted.
An independent consultant will be appointed to work with the industry to redraft the Code, according to the ABA. The industry is aiming to publish a new Code of Banking Practice by the end of 2017.