Banking changes: New bank code of practice to protect customers

The banks will be forced to adhere to new rules from today along with penalties with “real teeth”. This is how it will be better for you.

The peak banking body has created a new set of rules and strict new penalties to try and win back trust after an extended period of controversies highlighted during the royal commission.

The code of practice changes that came into effect today, the first day of the new financial year, are aimed at providing more transparency for people with credit cards to ensure less people are tricked into paying excess or hidden fees.

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The banks will now be forced to let the customer know when the introductory interest free offer for their credit card ends so they can be more aware and prepared when their charges change.

And if they fall into financial hardship, the lenders will be forced to be more open to chatting with their customer to help them through the tough period.

Australian Banking Association chief executive Anna Bligh said banks will be required to train their staff so they can better detect financial abuse as well as making sure people aren’t sold products or given credit that might get them into further trouble.

She told news.com.au that the things that won’t happen anymore will be the key changes under the new rules.

“You will no longer receive unsolicited offers for an extension of your credit card limit,” Ms Bligh said.

Ms Bligh admits the sector has a long way to go before it wins back trust.

“One of the features of the code is that it does require banks to focus more carefully and provide extra care to customers experiencing vulnerability.

“Many of the case studies in the royal commission looked at how things went wrong for people when they were particularly vulnerable.

“People can become vulnerable very quickly when their circumstances change — if you lose a job, if you have a severe illness, if your relationship breaks down, if there’s a natural disaster.

“You can find yourself unexpectedly in very difficult financial circumstances.”

Financial expert at comparison site Canstar, Steve Mickenbecker, said the new code is an evolution rather than a revolution to overhaul the problematic behaviours exposed during the royal commission.

“But it is moving us in the right direction,” he told news.com.au.

“The improvements will provide added protections for consumers, protections from the damage they can do to their financial situation through uninformed choices.”

Bessie Hassan, money expert at another comparison site, Finder, said the changes will ensure Australians are given better protections when it comes to their finances.

“The royal commission unearthed a lot of bad behaviour and some Aussies were taken for a ride,” she said. “This is a step in the right direction for future consumers.

“By better communicating about the end of introductory periods and simplifying contracts for small business, consumers (are) set to be looked after.”

Find out more about the new #BankingCode, which starts today: https://t.co/QyPUibI1hq pic.twitter.com/RiJjCUtWZ6

— Australian Banking (@ausbanking) June 30, 2019

BANK OF MUM AND DAD

Numerous case studies during the banking royal commission detailed how financially disastrous loans can get when a person acts as a guarantor for another — often it’s the mum and dad signing up to support their children.

“From today, guarantors must either have legal advice about the financial situation they’re about to about to enter into or they have to have a three-day grace period,” Ms Bligh said.

This enhanced education and chance to pull out of the arrangement will allow people to remove their emotions from a significant financial responsibility.

“Making emotional decisions when it comes to money can often lead to trouble,” she said.

SMALL BUSINESSES

Very small businesses will be entitled to a new form of contract, Ms Bligh says, which will be simpler and written in plain English to allow the borrower to better understand their financial position.

“It will have less conditions and it will have less circumstances in which the bank can call in the loan,” she said.

“So it will be a significantly fairer contracts where the balance of power tilts more towards the business than the bank.”

PENALTIES

The code is enforceable by customers who can take wrongdoings to the Australian Financial Complaints Authority.

Ms Bligh says the code can be used in the court of law which means its penalties has “real teeth”.

“There’s an independent body that actively monitors if banks are doing the right thing and that means they don’t just wait for customer complaints,” she said.

“They’re out doing secret shopper programs across a number of clauses of the code right across Australia and they’re publishing reports that will name and shame banks that do the wrong thing.”

BUT WILL IT WIN BACK TRUST?

Ms Bligh admits the sector has a long way to go before it wins back the trust of the community.

“It is very early days in the job ahead for Australian banks,” she said.

“They have to change their behaviour and consistently perform at a different level each and every day until you can reliably have confidence that it’s going to always be that way.

“The hard yards are ahead.”

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