The Australian Banking Association has rejected key recommendations of the Independent Review of the Banking Code of Practice, which were aimed at strengthening the effectiveness of the code and members’ commitment to it.
The ABA has taken a full year to respond to the review, which was conducted by economic consultant and former senior Treasury official Mike Callaghan.
Callaghan said a key challenge in improving the effectiveness of the code was the attitude of some banks, which see it as no more than a regulatory burden.
“The effectiveness of the code critically depends on the extent to which banks meet their commitments,” the review said.
To address this, Callaghan recommended that “a new commitment should be added to the code for banks to take all reasonable steps to have in place the appropriate systems, processes and programs to support an integrated approach to compliance. Banks should commit to a program of periodically reviewing the effectiveness of their compliance framework.”
The ABA does not support this recommendation. It said: “Banks already have existing obligations to maintain adequate systems, processes and programs, including under various APRA prudential standards and under the general licensing obligations of the National Consumer Credit Protection Act. Including this [recommendation] as an enforceable provision would introduce unnecessary duplication and overlap with existing legislation, and may expose banks to double penalties for the same conduct.”
The ABA does not support a related recommendation that the code include a commitment that banks will have in place appropriate frameworks and systems to support compliance with the code.
Callaghan also recommended that the ABA’s best practice industry guidelines should be incorporated as code-related documents, making them mandatory rather than voluntary.
The ABA said it would include links to the guidelines in the digital version of the code but it will make clear that they do not form part of the code and are not contractually enforceable.
Senior policy officer at the Consumer Action Law Centre, Tom Abourizk, said consumer advocates would be urging the ABA to take another look at this issue. He said it is an area where the banks can do more.
In other recommendations, Callaghan recommended that the code “should reflect that it is the customer’s perspective that will determine whether information provided by the bank is clear and useful.”
The ABA rejected this recommendation, saying the banks have existing processes to ensure that the information they provide is clear and appropriate for different customer groups and a diverse audience. It said the standard proposed in the review is too subjective and impractical.
In an effort to address the de-banking issue, Callaghan recommended that the code specify that a customer should not be denied a banking service or have an account closed without the bank raising it with the customer and giving the customer an opportunity to respond.
The ABA does not support this recommendation, saying the banks need the ability to use discretion depending on the circumstances. It added that in some cases it is not appropriate to give a customer reasons for its decisions.
It noted that the government is looking at this issue, following the release of a report on de-banking by the Council of Financial Regulators in August. It said it would give further consideration to the Callaghan recommendation when the government has considered the CFR report.
The ABA rejected a related recommendation that if a bank is going to cancel a credit card it will offer to discuss this with the customer.
For similar reasons, it rejected two recommendations dealing with buy now pay later products: a recommendation that the code include a commitment that buy now pay later products issued by banks will be subject to credit checks and eligibility requirements; and a recommendation that banks commit to only partner with BNPL providers that are members of the Australian Financial Complaints Authority and agree to meet ASIC guidelines on dispute resolution.
It said BNPL is likely to be subject to regulation in the near term and the AFCA commitment might put them in breach of restrictive trade practices rules.
Consumer Action Law Centre’s Abourizk said the ABA could have agreed to make the recommended changes on de-banking and BNPL and then adjust the code provisions down the track in response to regulation.
Callaghan made several recommendations aimed at making guarantee arrangements fairer, clearer and more secure. The ABA rejected all these recommendations, despite criticism in a Banking Code Compliance Committee report last year that banks’ compliance with their guarantee obligations was poor.
On the positive side, the ABA accepted a recommendation to update the definition of small business, which it estimates will extend the protections of the code to an additional 100,000 small business customers.
It will update sections dealing with accessibility and vulnerable customers to broaden their application. In particular, it has agreed with recommendations to make interpreter services available, along with services for people with hearing disabilities.
And it supported recommendations aimed at better debt collection services, including a commitment to monitor the collection activities of debt buyers before selling debt to them, and a commitment that if a debt relates to a customer experiencing vulnerability, the bank should not sell that debt to a third party.