Australian banks may be facing a massive overhaul with their code of conduct rules after an exhaustive review of the banking industry’s Code of Banking Practice has resulted in a call for improvement in its practices with respect to credit card and lending operations.
Carried out by former regulatory official Phil Khoury, the review report was welcomed by an industry body, the Australian Bankers’ Association (ABA) which commissioned the report after several scandals involving misconduct and wrongdoing by banks.
In a statement Steve Münchenberg, ABA chief executive said
We need a new code that better outlines banks’ ongoing relationship with their customers, with a strong focus on ethical behavior. To hold us more to account, the industry is looking at how we can strengthen the governance of the code and will work with the Australian Securities and Investments Commission on approving the code.
Khoury said that while the recommendations could over time be enforced by the government, banks could adopt it on their own if they are seeking to improve customer trust. Around 99 recommendations have been made in the report and chief among them are the lesser use of legalese language in the code and lesser qualifying statements. Khoury said that banks must avoid writing lengthy clauses just to reduce risk.
The review also pointed out that the current version of the code was not farmer or small-business friendly. It has proposed a separate section make it easier for farmers and small businesses to understand and apply the code. Khoury has also recommended curbs to be placed on marketing credit cards in order to reduce unnecessary consumer debts. He has asked the banks to improve their credit card affordability tests and enhance transparency with regard to credit card interest rates.
Higher levels of protection for loan guarantors has also been suggested. Khoury pointed out that parents and family members were being put down as guarantors by debtors in order to circumvent responsible lending regulations. He said that the code must be tightened to treat such people as guarantors if needed. Tighter regulations on cross-selling of insurance is also one of the Khoury’s recommendations.
The four major banks in Australia have admitted in public hearings conducted by the Ombudsman Kate Carnell from the Australian Small Business and Family Enterprise that there was a need for a code of conduct that was more enforceable. The ABA is currently tackling a number of reviews and investigations in addition to a threat of a royal commission into the financial sector.