The banking industry's code of conduct should be "substantially revised" to become broader and stronger, and should put new restrictions on issuing credit cards, according to an extensive review of the Code of Banking Practice released by the banks on Monday.
The 242 page report by Phil Khoury has made 99 recommendations including on helping troubled borrowers "to be given a fair chance to put things right" and requiring banks to introduce systems to respond to all the various inquiries into the sector currently underway.
Mr Khoury is the managing director of corporate governance advisers Cameron Ralph and was asked by the Australian Bankers' Association last July to review the code as part of its measures designed to restore community trust in the face of calls for a royal commission into the industry.
The Australian Bankers' Association said on Monday it would "provide a full response to the report in March and aim to release a new, enhanced code by the end of 2017."
Currently a "complex tapestry of obligations", Mr Khoury called for the Code of Banking Practice to be "re-drafted in a modern structure" and called for bank websites to clearly link to the code.
He said a new provision in the code should oblige banks "to set default fees that are reasonable having regard to the signatory bank's costs", and the general principle on fees should be for disclosure each time a customer is invited to use a banking service.
After reviewing material from Treasury and the Australian Securities and Investments Commission, he said banks must improve the quality of information and transparency for credit card customers. ANZ Banking Group on Sunday reduced credit card interest rates, a move for which Prime Minister Malcolm Turnbull claimed credit.
Mr Khoury said banks should put "some restriction on the way credit card credit is marketed and provided, including a more responsible approach to credit limit increases and making it easier for customers to reduce or cancel their credit card accounts".
He also made recommendations to make interest-charging and payment applications fairer and simpler for customers, and said the code should put restrictions around lenders mortgage insurance, including on excessive fees or disclosure on bank commissions or rebates.
The report also called for banks to do a better job dealing with direct debit cancellation requests, for restrictions to be imposed on selling consumer credit insurance and for stronger protections for loan guarantors and customers with special needs.
Stronger oversight
The banks should move to reinvigorate the code or risk stronger regulation in the future that could harm the industry more than the measures his report proposes, Mr Khoury said.
"The signal challenge in front of signatory banks today is one of restoring trust and I see a voluntary code, framed as promises to the community, as a better vehicle to achieve this than government-imposed legislation," the report said.
"I also see a voluntary code as able to be more flexibly framed than legislation, easier to understand than the law, and in theory, at least, much faster to update and evolve over time."
A new code should be approved by ASIC and the committee who oversees it should be substantially bolstered. The release of his report comes days after the appointment of former Labor Queensland premier Anna Bligh as chief executive of the Australian Bankers' Association from April 3. After reports he was angry with the appointment, Treasurer Scott Morrison said on Monday that he would continue to work with the banks.
Ms Bligh said on Friday the task for the banking industry and government is to work together to craft recommendations from various reports into the banks into a package of "well thought-through reforms".
Fewer lawyers
A new Code of Banking Practice must be less legalistic in order for bank customers to be able to understand it and enforce it, Mr Khoury said. The code itself specifies signatory banks are bound by it in respect of any banking service and guarantee.
"My view is that the code could be much more effective if re-drafted in a modern structure, based on key principles, in a plain-speaking style with fewer carve-outs and exceptions and with supporting detail in linked Industry Guidelines," he said.
Other recommendations called for the banks to treat vulnerable customers more fairly. It calls for "responsible lending" commitments to be given prominence at the front of the code.
The report calls on banks to "help borrowers who are in trouble with their credit to be given a fair chance to put things right, that they have fair access to information that would assist them and information about adverse credit reporting made about them".
It says banks should provide "more clarity about any assistance that is being provided by the bank and the potential consequences for the customer", including proactively identifying customers "at risk of financial difficulty and to offer them assistance to avoid their circumstances deteriorating".
The report said small business needs to be specifically protected by the new code, a point highlighted by small business Ombudsman Kate Carnell a specific section in a separate report into small business banking which she released earlier in February. Many of her recommendations are picked up in Mr Khoury's report, including amending the code to require banks to provide notice of decisions not to extend credit and to have procedures for dealing with conflicts of interest.
In a separate report on the Code Compliance Monitoring Committee, also released on Monday, Mr Khoury said "its role, positioning and mandate were widely seen as inadequate", so he called for a strengthened role focused on monitoring and for "improved assurance to the public that industry is complying with the code".
The Khoury report paints a bleak picture of current attitudes within the sector towards the code. Submissions to the review including from the Finance Sector Union highlighted a lack of staff training on the importance of the code.
"A number of stakeholders asked the question as to whether the code continued to add value and whether it produced sufficient value to be worth the effort," the report said.
But he adds that the report should provide the banks " with a path that will give them the best chance of achieving...the restoration of trust that the industry wants."
Responding to the report, outgoing ABA chief executive Steven Munchenberg, said: "We recognise banks haven't always lived up to the standards the community expects. That's why we're listening to customers about what we need to do better, and are making changes to our products, services and culture."
The last time code was reviewed was 2008; amendments coming out of that review took until February 1 2014 to take effect.
