Following the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry issued on 1 February 2019, the Australian Banking Association revised the 1 July 2019 version of its Banking Code of Practice. The latest version applies from 1 March 2020 and includes additional protections for small businesses, farmers and retail customers.
The new version of the Code applies from 1 March 2020 (2020 Code) and replaces the previously updated version that came into effect on 1 July 2019 (2019 Code). The 2020 Code has received approval from the Australian Securities and Investments Commission (ASIC) and has been authorised by the Australian Competition and Consumer Commission (ACCC). The 2020 Code can be found on the ABA’s website.
In this article, we highlight the key changes that are included in the 2020 Code and also flag areas of future change. For general information about the Banking Code of Practice, including an overview of its application, see Article, ABA’s new Banking Code of Practice for 2019. Read on for information about the key changes included that the 1 March 2020 version of the Code.
So, what’s new in the 2020 Code?
The changes to the Code have largely been made in response to the findings of the RC. Additionally, the ABA has taken the opportunity to tighten and clarify some other aspects of the Code. The main changes that are included in the 2020 Code are as follows.
Additional support to farmers affected by drought and natural disaster
In an important move to support Australian farmers, banks will no longer be entitled to charge default interest on a farming loan while the farm is affected by drought or other natural disasters.
Widening banking accessibility
The commitment for banks to provide inclusive banking services has been widened to include people with limited English. This extends the current obligation which applies to older customers, those with disabilities and Indigenous Australians.Additionally, banks are now required to help Indigenous Australians meet proof of identify requirements by using the Australian Transaction Reports and Analysis Centre’s (AUSTRAC) guidance about the identification and verification of persons of Aboriginal or Torres Strait Islander heritage.
Basic accounts and greater protections for low-income customers
The concept of a “basic account” has been introduced. These are accounts with low or no transaction fees designed to be provided to certain low-income customers (being those that have certain concession cards (see paragraph 44 of the 2020 Code for a list)). The 2020 Code sets out the minimum standards for basic accounts, ensuring that account features are standardised across the industry. Some of the minimum standards include:
- No account-keeping fees.
- No minimum deposits.
- Free access to periodic statements and direct debit facilities.
- A choice of a free debit card, including a scheme debit card support by the bank.
Basic accounts are not a mandatory bank product. However, if a low-income customer asks for a basic account and it is not available, the bank is required to offer an account that has the following features:
- No informal overdraft (being the ability for an account to be overdrawn without a customer’s express agreement).
- No dishonour fees.
- No fees if the account is in debit (though interest can be charged).
Banks must publicise the availability of affordable banking products. Additionally, if a customer tells the bank that they have a relevant concession card, the bank must provide information about basic, or other available accounts that have low or no standard fees or charges.– Skye Balasingham, Senior Writer Banking and Finance, Practical Law
Access to banking
The existing requirement for a bank to “take reasonable steps to make information about our banking services accessible to customers in remote communities” (see paragraph 36 of the 2019 Code) has been strengthened. From March 2020, banks will be under a positive obligation to assist “customers in remote communities to access and undertake their banking services” (see paragraph 36 of the 2020 Code).
Additional help for small businesses
The Code has been tweaked to clarify when a lender is able to take enforcement action for a non-monetary default. For example, one slight change has removed the ability for a lender to take action as a result of a non-monetary default where that default is material to the lender’s credit risk (see paragraph 83b of the 2019 Code and the 2020 Code). Additionally, a new obligation to provide the small business with a notice setting out the grounds on which the lender believes a non-monetary default has occurred has also been imposed.
Notice of default
There is no change to the need for a lender to give a defaulting small business 30 days’ notice before it requires a borrower to repay the loan or the lender takes enforcement proceedings. However, some changes have been made to the circumstances in which less than 30 days’ notice is permitted, including that the risk to the lender must be a material and immediate risk relating to the default, the customer’s circumstances or the value of the security (see paragraphs 77b and 82 of the 2020 Code).
The rules applicable to the enforcement of a mortgage or other security provided by the guarantor of a loan will now extend to security provided by guarantors of small business loans. Importantly for those guarantors, this means that the lender must, generally speaking, first enforce security provided by the borrower before taking action to enforce security provided by the guarantor.
What hasn’t changed (yet)?
The approval of the 2020 Code by ASIC and the ACCC is conditional on additional changes being made from 1 March 2021:
- ASIC requires the definition of “banking services” to be revisited to ensure that the Code will apply to the services provided to all small businesses.
- ACCC wants additional protections to be included for basic accounts and informal overdrafts so that the rules better reflect the spirit of the RC. Accordingly, changes to ensure that:
- banks will not be entitled to charge interest on overdrawn funds (or must refund interest changed if an account is overdrawn) in circumstances where the overdraft facility was not specifically requested by the low-income customer; and
- banks proactively identify customers that may be eligible for basic accounts (see Basic accounts and greater protections for low-income customers) will need also to be made. Additionally, the ABA will be required to report to the ACCC with certain information relating to basic accounts and informal overdrafts (such as the steps that banks have taken to contact existing customers who might be eligible for a basic account).
What really hasn’t changed?
One notably absent change is that the definition of “small business” remains as per the 2019 Code. This is despite RC recommendation 1.10 noting that the Code should apply to a wider category of small businesses, being those:
- employing fewer than 100 full-time equivalent employees; and
- where the loan applied for is less than $5 million.
Despite initial suggestions that the ABA was considering this recommendation, it is not clear whether the definition will be amended.
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