ASIC has announced that it has approved the Banking Code of Practice (the Code) submitted by the Australian Banking Association. All ABA member banks with a retail presence in Australia will be required to subscribe to the Code as a condition of their ABA membership
The Code replaces the current 2013 version of the Code.
The revised Code will apply from 1 July 2019 unless an ABA member bank has subscribed earlier.
Protections for consumers
The changes to the Code include:
- Banks will not receive commissions on lenders mortgage insurance;
- 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;
- when consumers apply for a new consumer credit card or credit limit increase, banks will assess their ability to repay the amount of the credit card limit within a five year period;
- protections for guarantors of loans, including 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;
- rules requiring credit card customers to receive reminders about balance transfer promotional periods ending, as well as more consistent treatment about how repayments are applied; and
- enhanced processes for assisting customers in financial difficulty and processes for resolving complaints.
Small business lending
The Code now includes a separate section relating to small business lending.
What is a “small business”?
A business is a “small business” if at the time it obtains the banking service all of the following apply:
a) it had an annual turnover of less than $10 million in the previous financial year; and
b) it has fewer than 100 full-time equivalent employees; and
c) it has less than $3 million total debt to all credit providers including:
i. any undrawn amounts under existing loans;
ii. any loan being applied for; and
iii. the debt of all its related entities that are businesses.
The Code sets out when a bank will not enforce a loan against a small business for non-monetary defaults.
Review of Code
To ensure the definition of small business provides a high level of coverage of the small business sector, ASIC’s approval is conditional on an independent review of the definition within 18 months of the Code’s commencement.
The ABA will arrange an independent review of the Code every three years.
Until then ASIC will collect quarterly data from banks and the Australian Financial Complaints Authority to monitor the extent of the Code’s coverage of small business. ASIC will ensure that this data is made public every six months.
ASIC notes that it may review its approval of the Code in light of findings by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry relevant to the Code.