The new banking code looks impressive, but what will it achieve?

On July 1, the banking industry got yet another code of conduct – its fifth since 1993 – and although it is voluntary, all of the retail banks have signed up.

In the promotional video, Australian Banking Association chairman Shayne Elliott describes it as “a step”, acknowledging that there is a lot of work to do.

In and of itself it won’t restore trust, but it will absolutely help. It’s about the industry saying: hey this is what we stand for, this is how we are going to live our lives, this is how we are going to interact with you, but it’s importantly about holding us to account.

It’s an admission that the previous codes haven’t been worth that much.

Australian Banking Association, Raising Standards - New Banking Code.

The 1993 edition promised customers a quick and fair dispute-resolution mechanism, outside the drawn-out and often costly court system.

However a subsequent revision in 2003 allowed banks to opt out, and steered some disputes back into the courts.

It also created a Code Compliance Monitoring Committee, appointed and funded by subscribing banks and the Australian Banking Association, which over time investigated fewer and fewer breaches of the code.

It got to the point where in 2017-18 the committee said that five banks reported zero breaches of the code’s credit and dispute resolution obligations, and six banks reported zero breaches of their debt collection obligations.

This was despite a growing body of evidence of breaches assembled for the banking royal commission.

Everything old…

The Code Compliance Monitoring Committee has been rebadged as the Banking Code Compliance Committee. It will have the power to publicly name banks that breach the code, report serious and systemic ongoing issues to Australian Securities and Investments Commission, and require banks to rectify or take corrective action for serious breaches of the code.

Separately, in November 2018 a new body known as the Australian Financial Complaints Authority replaced the opaque and bank-funded private company known as the Financial Ombudsman Service Limited, which had been limited to providing compensation of A$309,000.

In some cases the new body can offer unlimited compensation.

It has its hands full. In its first six months it has received 35,000 complaints, some dating back up to ten years. About 12,000 of them relate to banks. In May it received more than 600 enquiries per day.

…is new again

For banking customers the new code offers:

• lists of direct debits and recurring payments, making it easier to switch banks

• notice of transaction fees before they occur

• extra care when providing banking services to the vulnerable

• better protections including a cooling-off period for guarantors, and

• notice to guarantors of changes to the borrower’s circumstances.

For credit card customers, banks will:

• remind customers when a credit card introductory offer is about to end

• cease unsolicited offers to increase credit limits, and

• let customers reduce their credit limits or close their card accounts online.

Small businesses are covered for the first time. The code offers:

• simplified loan contracts with fewer conditions for total loans under A$3 million (the Small Business and Family Enterprise Ombudsman wanted a threshold of A$5 million)

• longer notice periods for when loan conditions change, and

• greater transparency when using valuers and insolvency practitioners.

The Australian Securities and Investments Commission will monitor what happens with small business and publish its findings every six months. It has no broader role in administering the code. Only complaints that are deemed severe will be be referred to it for investigation and prosecution.

More than window dressing?

Small business will have to stay on their toes. Only some of the more than 100 institutions that provide services to them have signed up to the code. None of the online-only lenders has signed up.

Will this, the fifth iteration of the of the code, move beyond what at times has seemed cynical window-dressing?

Trust is built on demonstrated behaviours. Not only will the banks need to stick to their new code, but any breaches will need to be addressed in a timely and substantive manner.