Bank customers will no longer be tempted by rising credit card limits and business loan contracts will be simplified under new changes to the banking code of practice.
Australian Banking Association chief executive Anna Bligh said the new code coming into effect in 2018 will bring higher ethical standards and greater fee transparency.
“It will deliver improvements to credit cards and, importantly, it will have a whole new chapter on small business and the rights of small business borrowers,” Ms Bligh said on Wednesday.
Central to the new code will be small business loan contracts “written in plain English” – a measure welcomed by Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, who was consulted on a draft version of the code.
However, Ms Carnell said she is perplexed that banks can still rely on the “materially adverse changes” clause and unilaterally change the conditions of a loan anyway.
“We understood the big four banks had individually agreed to remove those clauses, so its inclusion in the code is perplexing,” she said.
Ms Carnell also called for the code’s definition of a small business loan to be raised from $3 million to a debt facility of up to $5 million.
Unresolved questions still linger around the power imbalance banks enjoy, especially regarding the non-independent Banking Code Compliance Committee which will govern the new code, she said.
“It’s like the umpire is appointed by the home team and they don’t have to accept the umpire’s decision,” Ms Carnell said.
Under the new code, banks will no longer make unsolicited offers to raise credit card limits, customers will be able to cancel their cards online, and new card owners will be told when their interest-free period expires.
Banks will also proactively look for customers struggling financially and apply better safety nets for guarantors.
Ms Bligh said the game-changer would be that the new code was legally enforceable.
“It will become part of the contract that customers have when they get a credit card, a personal loan or mortgage and those rights, if they are breached, can be enforced by customers,” Ms Bligh said.
The update follows growing scrutiny of banking behaviour that culminated in Prime Minister Malcolm Turnbull’s November announcement of a royal commission into the financial services sector.
Other changes in the code include:
* Customers will be told when a bank reports a loan repayment default to a credit reporting body
* Customers can ask for a list of direct debits and recurring payments made on accounts as far back as 13 months.
* Customers will be told “where practical” of transaction service fees immediately before they incur the fee.
* Customers without access to electronic statements will have their statement fees waived or refunded.
* Small businesses will get a longer notice period for changes to loan conditions or a bank’s decision on the loan being provided.
* Guarantors will be notified of changes to the borrower’s circumstances, including if they are experiencing financial difficulty.