Banking code committee to launch inquiry into financial difficulty

As part of the Banking Code Compliance Committee’s annual report 2023, it has announced it will be investigating the increasing financial difficulties facing Australians.

This development coincides with a growing number of borrowers grappling with financial challenges, exacerbated by the effects of higher interest rates, surging inflation, and escalating costs.

As such, the BCCC’s financial difficulty inquiry will scrutinise whether banks are equipped to assist an increasing number of customers confronting financial hardship with effective and sustainable solutions.

It will also explore long-term sustainable solutions within the current economic climate and assess obligations pertaining to the provision of basic, low, or no-fee accounts.

The decision to delve into these issues was prompted by the BCCC’s report that there had been “insufficient proactive identification of customers facing financial difficulty.”

Additionally, the committee found an escalating number of media reports and industry analyses have underscored the ramifications of mounting challenges on loan affordability.

The BCCC further noted that as fixed-rate loans mature, the financial difficulty is expected to exacerbate.

Consequently, the inquiry is scheduled to commence in the third quarter of 2023–24, coinciding with the conclusion of the fixed-rate loan period for many customers who secured home loans during the peak of the COVID-19 pandemic.

This financial burden faced by Australian borrowers is compounded by the fact that many are ensnared in their current loans, unable to pass the 3.0 per cent serviceability buffer.

A recent Broker Pulse survey conducted between 1 June and 15 June 2023, found that 96 per cent of brokers reported that up to 10 per cent of their clients were unable to refinance or obtain a loan, classifying them as ‘mortgage prisoners’.

Transition to the new code

In addition to the inquiry into financial difficulties, the committee has pledged to continue its migration to the new code.

Chairperson Ian Govey said: “We will continue to work closely with the ABA, regulators, banks and consumer groups to ensure the proposed amendments to the Code reflect high standards, address the recommendations from the independent review of the Code, promote responsible banking practices and serve the communities’ interests.”

The ABA, the body responsible for developing the code, establishes the standards of practice for banks, their employees, and representatives, which are adopted by member banks.

Over the past 18 months, the ABA has been actively proposing amendments to its charter to align with the Code’s amendments.

Recent questioning of the effectiveness of the banking code in holding banks accountable for branch closures in regional communities by the Senate committee on rural and regional affairs and transport has also surfaced.

However, ABA chief executive Anna Bligh argued that breaches of the code are “very rare” and highlighted that significant improvements have recently been made, with extensive consultation and redrafting, following a submission to ASIC.

[Related: Nearly all brokers have mortgage prisoner clients: Broker pulse]