ASIC approves new Banking Code of Practice

ASIC has approved the Australian Banking Association’s  new Banking Code of Practice, marking the first comprehensive broad-based industry code approved under the regulator’s relevant powers. The code will apply starting 1 July next year. 

Beneficial for small businesses
The new Code provides improved protection for small business borrowers, as it expands the reach of legal protections from unfair contract terms.

Protection from unfair contract terms apply to small businesses that borrow up to $1m. For businesses that borrow up to $3m, the code ensures lending contracts are free from any “potentially unfair and one-sided terms.” The code will go through ASIC’s review within 18 months after its commencement to ensure the code adequately covers the small business sector. 

The regulator will also gather quarterly data from banks and the Australian Financial Complaints Authority to monitor the reach of the Code’s coverage in small businesses. ASIC will publicly release the date every six months.    

The Code has enhanced consumer protection compared to the 2013 version, and includes:

• provisions for inclusive and accessible banking, including for vulnerable customers, customers on low incomes and Indigenous customers;
• protections relating to the sale of consumer credit insurance (CCI) including a deferred sales period of four days for CCI for credit cards and personal loans sold in branches and over the phone;
• protections for guarantors of loans, for instance, giving prospective guarantors generally three days to consider information about a guarantee and requiring banks to only enforce a guarantee once they have taken action against the borrower;
• enhanced processes for assisting customers in financial difficulty and processes for resolving complaints

Enforcement
All ABA member banks will be required to abide by the new code as part of their ABA membership. An independent monitoring body, the Banking Code Compliance Committee (BCCC), is tasked to administer and enforce the code. Anyone can report a breach of the code to the BCCC, and any consumer or small business owner with arguments about the Code can bring their disputes to the new Australian Financial Complaints Authority.

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