ASIC approves banking code changes

The new changes are due to come into effect as of 1 March 2020.

The amended code of practice is intended to strengthen protections for vulnerable and low-income customers, including agricultural borrowers affected by drought and natural disasters.

Further, the 2020 changes will ensure appropriate protections for consumer and small-business customers and their guarantors.

The new code of practice changes will ensure that banks:

• introduce the concept of “basic accounts” that have minimum features (including no account-keeping fees, no minimum deposits, free direct debit facilities and access to a debit card)
• provide for eligible low-income customers to access basic accounts and other low and no-fee accounts, each of which must not feature informal overdrafts, dishonour fees or overdrawn fees
• clarify the restrictions on non-monetary defaults on small-business loans
• extend protections to guarantors of small-business loans – banks will now be required to first pursue the borrower in the event of default, before the guarantor (previously, the code limited these protections to guarantors of consumer loans), and
• prohibit default interest on small-business loans secured by agricultural and commercial property in the event of drought or natural disaster.

Further, ASIC’s decision to approve the March 2020 changes to the code has been made on the understanding that the ABA will revisit the code’s definition of “banking services” and include an amended definition as of 1 March 2021.

These changes are intended to address a concern that stakeholders and ASIC share about the consequences of the current definition for small-business coverage under the code.

ASIC also notes future additional changes relating to informal overdrafts on basic accounts, with these changes still pending authorisation from the Australian Competition and Consumer Commission (ACCC).

The official ASIC approval is contained within the ASIC Corporations (Approval of March 2020 Banking Code of Practice) Instrument 2019/1255, with additional provisions made to revoke a previous amendment made to the code in June 2019.

The June 2019 approval of changes to the ABA’s Code of Practice will remain in place until the March 2020 revision comes into effect.

‘These changes will benefit customers’

Anna Bligh, CEO of the Australian Banking Association, said the approvals of the ACCC and ASIC meant that banks were now able to implement the changes requested by commissioner Hayne in his final report for the banking royal commission.

“The industry has worked tirelessly to implement the recommendations of commissioner Hayne and ensure these changes received the necessary regulatory approvals so they can be implemented by 1 March 2020,” Ms Bligh said.

“These changes will benefit customers and mean every bank will have a standard basic, low-fee or no-fee account for low-income earners, and there’ll be a ban on charging default interest on distressed agricultural loans for farmers subject to droughts and natural disasters.

“These changes to the code come on top of a number the industry has made as a result of the royal commission, including ending fees to customers when no service has been provided and improving the way banks manage deceased estates,” she said. 

Geoff Fader, chair of Tasmanian Rural Financial Counselling, welcomed the changes and the effect the new code will have on drought and natural disaster-affected farming communities.

“The changes to the code demonstrate that banks do understand the variable and tough conditions that farmers face and are willing to work with farmers to get through these difficult times,” Mr Fader said.

“The banning of default interest during drought or natural disaster gives greater protections to farm businesses and ensures a standard practice across banks. 

“This gives farmers greater certainty during what is a very stressful time for them,” he concluded.

[Related: ACCC calls for stronger protections in banking code]