Commonwealth Bank has welcomed the proposed changes to the Banking Code submitted by Australian Banking Association to ASIC on Friday for industry consultation.
The changes to the Code included increased protections for small businesses first outlined in the Hayne royal commission as well as a new definition for vulnerable customers and addition protection for loan guarantors.
CBA said it was “supportive” of the Code and its new proposed clauses on vulnerability, guarantors, and small business.
“The Code is now before ASIC for industry consultation – we look forward to sharing what the new code means for our customers once this step is completed,” Australia’s largest bank told Australian Broker.
Enforced by the Australian Financial Complaints Authority and generally seen as a contract between banks and customers, the Banking Code is a set of enforceable rights and entitlements for bank customers that are over and above the law.
“The Banking Code is an important part of Australia’s regulatory framework, it gives customers significant extra safeguards,” said Anna Bligh, CEO of the ABA (pictured above). “The current Banking Code is the only Code in the financial services sector with ASIC approval and the industry is determined to maintain these high standards.”
Part of the changes included new obligations for banks to meet with customers intending to act as guarantor to help them understand their obligations before accepting a guarantee.
Given that the Code has not been publicly published, how this will affect lenders and brokers remains to be seen.
However, the Banking Code Compliance Committee had previously recommended that banks increase guarantor controls on third parties such as brokers – something that the MFAA cautioned against last week.
While the MFAA agreed that it was “entirely appropriate” for lenders to “outsource these obligations” to brokers, the association cautioned against broker attestations or declarations about the vulnerability of guarantors.
Another major change proposed in the updated Code is a new vulnerable customer definition.
The ABA said this would acknowledge that anyone can become vulnerable at any time in their life due to a life changing circumstance such as losing a partner or a job or becoming ill.
Financial vulnerability has been a topic of concern in recent weeks after ASIC sent a letter to lenders in August reminding them of their obligations to customers experiencing financial hardship.
There has been a 28% increase in calls to the National Debt Hotline in 2023 compared to this time last year, and ASIC said surveys indicated that a growing number of consumers were reporting “very high levels of financial stress”.
The regulator, which is undertaking a review of 10 large home lenders to understand their approach to financial hardship, made its approach clear after it sued Westpac for not meeting its financial hardship obligations.
In an ironic twist, Westpac CEO Peter King, who is facing the lawsuit, is also ABA chair pushing for the changes to the Code.
Other proposed changes to the Code include:
“For the first time, the ABA will prepare a new ‘Customer Guide’ outlining banking protections available under Australian law and how consumers can access and enforce those protections along with the Code,” said Bligh.
“Banks are committed to using simpler language for customers to understand how the Code protects them.”
In addition to the increased protections for customers, the ABA has taken the opportunity to streamline and simplify the Code where possible.
“Since the last Code was updated in 2019 there is now 1,175 pages of additional legislation and regulation applying to the banking sector. The ABA has taken this opportunity to strike the right balance between creating new protections and removing parts of the Code that were either already in law or have been recently superseded by new legislation,” said Bligh.
The updated Code follows extensive stakeholder consultation overseen by independent reviewer, Mike Callaghan. ASIC will now undertake its own consultation with relevant industry stakeholders as part of their approval process.
The ABA anticipates the new Code will be in place in early 2024.
Australian Broker approached the three other major banks for comment.
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