Industry codes of conduct can provide additional and stronger protections for consumers of credit. Industry codes are not laws of parliament, but are agreements entered into by members of an industry about the standards and practices they will uphold. Industry codes range from unenforceable voluntary codes to compulsory codes that bind industry members.
The Code of Banking Practice (“Banking Code”) is a voluntary code that sets out standards of good banking practice, including in relation to credit services. Financial service providers that subscribe to the Banking Code promise to follow those standards when dealing with consumers who are, or may become, their individual and small business customers, or guarantors. Virtually all retail banks subscribe to the Banking Code.
The Banking Code provides that subscribing banks will:
•act fairly and reasonably towards its customers in a consistent and ethical manner (cl 3.2);
•supply the terms and conditions of any banking services it offers to any person on request (cl 12);
•promptly process instructions to cancel a direct debit authority and complaints about an unauthorised direct debit (without directing or suggesting that the matter should be raised first with the debit user) (cl 21);
•where a customer disputes a credit card transaction, claim a chargeback right and not accept a refusal from the relevant merchant’s bank except in certain circumstances (cl 22.1);
•before offering, giving or increasing an existing credit facility, exercise the care and skill of a diligent and prudent banker in selecting and applying its credit assessment methods and in forming its opinion about the customer’s ability to repay (cl 27);
•try to help a customer overcome their financial difficulties with any credit facility held with the bank, including by developing a repayment plan, communicating with the customer’s financial counsellor, informing the customer about the hardship variation provisions in the NCC (if applicable) and confirming the main details of any hardship assistance it provides in writing (cl 28);
•not accept a person as a co-debtor under a credit facility where it is clear, on the facts known to the bank, that the person will not receive a benefit under the facility (cl 29.2);
•before signing a person up as a co-debtor, take all reasonable steps to ensure that they understand they may be liable for the full amount of the debt and their rights to terminate their liability in respect of future advances or accommodation (cl 29.2–29.3);
•give certain information to a prospective guarantor about the financial situation of the debtor whose loan is being guaranteed (cl 31.4);
•not ask a prospective guarantor to sign a guarantee unless it has allowed them until the next day to consider the information referred to above (unless the prospective debtor has received independent legal advice after receiving the information) (cl 31.5);
•not give the guarantee instrument to the debtor or their representative (unless the representative is a lawyer or financial advisor) to arrange the signing (cl 31.6(a));
•ensure the guarantee is signed in the absence of the debtor and in the presence of the bank (cl 31.6(b));
•comply, and take all reasonable steps to ensure their collection agents also comply, with the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission’s Debt Collection Guideline for Collectors and Creditors (cl 32.1(a));
•not assign a debt while considering a customer’s hardship request or while a customer is complying with an agreed hardship arrangement (cl 32.1(b)).
Importantly, the Financial Ombudsman Service (see “Solving disputes with creditors”) considers that the Banking Code generally reflects the common law obligations of financial service providers and good industry practice, both of which it can have regard to under its Terms of Reference when determining disputes. It also considers that if a subscribing bank has breached the Banking Code, it has also breached its contract with the customer (Financial Ombudsman Service, The FOS Approach to the 2013 Code of Banking Practice, January 2014).
The Banking Code is reviewed every five years. The most recent version, which has applied since January 2014, includes improved protections for guarantors. Copies of the current and previous Banking Codes are available at www.bankers.asn.au.
Other similar industry codes that may assist consumers include the Mortgage and Finance Association of Australia Code of Practice (whose signatories include mortgage and finance brokers and managers), the Customer Owned Banking Code (formerly the Mutual Banking Code of Practice for credit unions and mutual building societies) and the SEQUAL Code of Conduct (for providers of equity release products, such as reverse mortgages).
Following an 18-month transition period that ended on 20 March 2013, the ePayments Code has replaced the Electronic Funds Transfer Code of Conduct (“EFT Code”) as the principal industry code for electronic payment transactions. The ePayments Code is intended to provide a best practice consumer protection regime in relation to ATM, EFTPOS and credit transactions, online payments, internet and mobile banking, and BPAY. Although voluntary, almost all banks, credit unions and building societies subscribe to the ePayments Code and have been bound by its terms since 20 March 2013 (or earlier date if they so nominated) (cl 40 ePayments Code). Prior to this date, almost all subscribers were bound by the EFT Code. A list of subscribers is available at www.asic.gov.au.
Among other things, the ePayments Code:
•requires subscribers to give consumers terms and conditions, information about changes to terms and conditions (such as fee increases), receipts and statements (cl 4–6);
•sets out the rules for determining who pays for unauthorised transactions (cl 9–17); and
•establishes a regime (which didn’t exist under the EFT Code) for recovering mistaken internet payments (cl 24–34).