There’s an oft unspoken code, sworn by all major and most minor banks in Australia, whereby the formal relationship between a customer and their bank is defined. And it’s about to be officially amended and ratified for the first time since 2013. We outline what the Code is, and what changes you should be aware of.
Never heard of the Code before?
First introduced in 1993, the Code aims to promote best practice and define high standards of ethics for the relationship between customers and banks. The banks are expected to follow the provisions set out in the Code, which are built on the four guiding principles of trust and confidence, integrity, service, and transparency and accountability.
Sorry Capn’ – we’re not talking about the Pirate Code here. The Code of Banking Practice provisions will be legally binding as part of contracts between banks and customers. And no, there’s no option to claim parley within this Code (to my dramatic disappointment).
How it differs from the 2013 Code.
A lot has happened since the last update of the Code. Interest rates have continued their steady descent, the world has become increasingly digitally connected, and Australia had a Royal Commission into the Banking industry(!). The 2019 Code reflects our changing world, where a spotlight now shines onto the historically average behaviour of banks. The changes are also designed to be more accessible for all, as well as counter household debt as bank credit becomes more accessible.
The 3 big changes out of the 2019 update:
Applying for a home loan? You’ll need to receive a substantial benefit from the loan.
A ‘substantial benefit’ includes acquiring a reasonably proportionate legal or equitable interest in any assets purchased with the loaned funds, or using a reasonable portion of the loaned funds to repay debts or other obligations owed by you.
This new rule applies to all loans, and not just home loans, with more than one applicant. And, if the lender determines you will not receive a substantial benefit, they can’t approve you as a co-borrower. Being a guarantor is still allowed, although Tic:Toc doesn’t (yet) offer guarantor loans.
This change will help protect vulnerable applicants and ensure applicants who will receive none of the money, or benefit of the money (such as the use of a joint asset), will not be allowed to borrow.
For Tic:Toc, this means if you’re on the purchase contract, you’ll need to be on the loan documents (which is a requirement of our credit policy) - and vice versa. We can’t allow an applicant to be listed as a co-borrower if they won’t receive a substantial benefit.
Fees and commissions on LMI abolished.
Banks are no longer allowed to charge other fees for Lender’s Mortgage Insurance, or collect any commissions in relation to LMI. You’ll receive LMI at cost, with no mark-up. And, if you repay your loan before the end of the policy, you may be entitled to a partial refund. This is great news, as it simplifies LMI for consumers and allows for greater transparency when determining how much LMI may cost you. Lenders also need to provide a key fact sheet on LMI.
Tic:Toc has never charged fees in relation to taking out LMI, and we don’t collect commission from any third party when a customer takes out an LMI policy, either. The amount of LMI on a Tic:Toc home loan will depend on the property value and your deposit size, and we add the cost of LMI to your principle loan amount – so you pay it off as part of your home loan. If your deposit size is 20% or greater – congrats! You won’t even need to pay LMI.
No more unsolicited offers for credit cards.
Banks can no longer send you unwanted and unsolicited offers to increase the limit on your credit card. If you want or need an increase, you’ll need to proactively seek one with your bank. The aim of this change is to decrease the uptake of unnecessary lines of credit and to reduce household debt. And it means less junk mail in your inbox!
There’s plenty of other changes, too:
- the Code has been rewritten in plain, easy-to-consume English;
- cancelling credit cards online will be easier;
- you’ll be notified before your introductory credit card offer ends;
- a list of your recurring payments/direct debits will be provided to you, giving you more financial visibility;
- customer’s ability to repay the full credit card limit within five years will now be considered as part of responsible lending obligations;
- proactive contact with customers deemed to be at risk of financial difficulty is now expected;
- active promotion of affordable banking products will be required;
- the independent Banking Code Compliance Committee (BCCC) are entrusted to investigate alleged breaches of the Code, which includes making findings on conduct and recommending sanctions; and,
- the BCCC can now issue formal warnings to banks, as well as publicly name banks for breaches of the Code. Penalties and corrective actions, such as ordering a bank to undertake a compliance review, requiring staff to undertake further training, and reporting issues directly to ASIC, can also be handed down.
Overall, the 2019 update is a big win for the rights and protections of consumers, and will further shift the standards that customers can expect from their bank or lender.
Want the full nitty gritty of the 2019 Code of Banking Practice? Check it out over at the Australian Banking Association.