The Australian Securities and Investments Commission (ASIC) has approved the Australian Banking Association’s new Code of Banking Practice (COBP), set to commence operation on 1 July 2019.
The new code has been approved following a prolonged dispute over certain terms of the new code, which came to light during the third round of hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The new COBP includes:
New rights and protections for customers:
- Banks will abolish fees and commission on lenders mortgage insurance and will provide a fact sheet on the key policy features if customers require the insurance.
- A delay in offering add-on insurance for credit cards and personal loans.
- Customer 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 and have measures to help them.
- A commitment to take extra care with vulnerable customers and to train staff to help.
- Active promotion of affordable banking products.
- Assist people on low incomes to pick the right accounts for them (low or no-fee accounts for pensioners and concession).
- Give customers lists of direct debits and recurring payments, making it easier to switch.
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.
- Give more notice when loan conditions change — helps with business planning.
- Improved communication and greater transparency when using valuers and insolvency practitioners.
- If a small business, with loans under $3 million, 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).
New rights and protections for guarantors:
- Better protections for guarantors to ensure they understand their obligations, including a cooling-off period and advocating that they seek independent legal advice 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:
- The independent Banking Code Compliance Committee (BCCC) will investigate any alleged breaches of the code, make findings and recommendations relating to breaches and apply sanctions.
ASIC approval “conditional”
It was revealed during the course of the financial services royal commission that ASIC and the ABA could not agree on the definition of a small business.
The regulator has now said that its approval of the new COBP is conditional on an independent review of the definition of a small business within 18 months of the code’s commencement.
“This targeted review will test the adequacy and application of the code’s small business coverage in practice, and will occur well before the code’s comprehensive review, due three years after its commencement,” ASIC said.
The regulator also stated that it will collect quarterly data from banks and the Australian Financial Complaints Authority (AFCA) to monitor the extent of the code’s coverage of small business and ensure that the data is made public every six months.
ASIC has also said that it could review its approval of the new COBP if the financial services royal commission makes findings relevant to the new code.
Highlighting the benefits of the reform, ABA CEO Anna Bligh said: “The new code will introduce a range of new measures to make banking products easier to understand and more customer-focused,” Ms Bligh said.
“It represents a stronger commitment to ethical behaviour, responsible lending, greater financial protection and increased transparency.
“Banks value their customers and the new code is a big step towards providing better banking for all Australians.
“Customers will see real tangible benefits, including more information about changes to their accounts, delay in offering on add-on insurance products and simpler contracts, with fewer conditions for small business loans.”
Ms Bligh added: “Banks understand that Australians have high expectations and know that they have a big challenge ahead of them. The new Code of Banking Practice marks an important step in the right direction.”
[Related: RC brings banking code quarrel to light]