The commitment from banks that they will comply with the Banking Code of Practice should be strengthened to include a commitment to have in place appropriate frameworks and systems to support compliance with the code, and the effectiveness of these frameworks should be subject to audit.
This is one of the key recommendations of the Independent Review of the Banking Code of Practice, released by the Australian Banking Association on Friday.
The review, which was conducted by economic consultant and former senior Treasury official Mike Callaghan, said a key challenge in strengthening 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,” it said.
Another key recommendation is that the code needs to provide greater clarity about enforceability.
The review said: “The code is currently oblique in references to enforceability of code provisions. The ABA chef executive says the standards of behaviour and service set out in the code are ‘enforceable rights for consumers’. There is no explanation in the code how they can be enforced.
“To overcome misconceptions, the code should have a specific reference as to how all the provisions in the code can be enforced.”
A third key recommendation is that to reinforce the code’s role in encouraging “inclusive and accessible banking”, the definition of a vulnerable customer should be wider than the list of specific circumstances in the current code.
The wide-ranging review calls for updates to the code to take account of legislative and regulatory changes, as well as changes in industry conditions. These include mandatory credit reporting, open banking, the design and distribution obligation, buy now pay later, ePayments and branch closures.
Mandatory credit reporting: The ABA should assess the extent to which the code may need to be changed in response to the introduction of mandatory credit reporting. The code should include a requirement that banks will tell customers what the impact on their credit report will be when they accept or refuse a hardship or collections arrangement.
Open banking: The code also needs to reflect consumer rights under open banking, specifically that a consumer has the right to remove a joint account from the consumer data right, and that banks will be proactive in identifying vulnerable customers and alerting them to this right.
Design and distribution obligations: The code should include a statement that if a customer suffers loss or damage because a bank contravenes the design and distribution obligations, the customer may recover the loss or damage from the bank.
Buy now pay later: The code should include a commitment that BNPL products issued by banks will be subject to credit checks and eligibility requirements to ensure the products are suitable for consumers.
The code should include a commitment that banks will only partner with BNPL providers that are members of AFCA and agree to meet ASIC guidance on dispute resolution.
ePayments: ABA banks should commit to subscribing to the ePayments Code and complying with the consumer protections