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What does the new banking code mean?

As I talked about here, today is the beginning of what has been called 'open banking' which is a move towards a more transparent banking industry and we are now seeing a little more of what this new code (ie code of practice, might mean.

It's important to note that these changes to the banking industry in Australia have arrived following the 2018 royal commission and have been created to ensure that the many stories of concern we heard about some of the banks' practices are not repeated.

Here's a few things that we know about it so far:

  • Banks have to inform customers when any introductory interest free offer period ends on a credit card so that they can prepare and not get caught out

  • There is a requirement for banks to give extra care to customers who are experiencing financial hardships (ie severe illness, a relationship breakdown, job loss or a natural disaster)

  • The reforms will protect customers from making uninformed choices by forcing banks to proactively provide clarity of information

There is also protection for those who become a guarantor for someone else's loan. Often it's the bank of mum and dad as I talked about here and here. In any guarantor situation, the guarantor must seek either legal advice or accept a 3 day cooling off period. The article below notes that this will enable separation of any emotion attached from the transaction to ensure that the guarantor isn't taken advantage of or placed in a hardship situatioin.

Very small businesses also will be eligible for a new form of contract. Anna Bligh (CEO of the Australian Banking Association) was quoted as saying that the contracts 'will be simpler and written in plain English to allow the borrower to better understand their financial position' and 'it will have less conditions and it will have less circumstances in which the bank can call in the loan'. It'a interesting to note that the criteria of a 'very' small business is as yet unclear.

There are penalties attached to this code of practice and Mrs Blight said that 'the code is enforceable by customers who can take wrongdoings to the Australian Financial Complaints Authority (AFCA).

Mrs Bligh also said that the sector 'has a long way to go before it wins back the trust of the community' and 'it's very early days in the job ahead for Australian banks'.

It would appear that the new code is a real step in the right direction and we'll see more as July progresses.

The RBA meets tomorrow and many economists are predicting a further rate cut, but we will see.

Source here.