Low-income consumers and drought-affected farmers are set to benefit from an Australian Competition and Consumer Commission (ACCC) proposal to impose conditions on the reviewed Banking Code of Practice.
The ACCC said it wants to ensure the revised code will benefit low-income consumers and drought-affected farmers, after the Australian Banking Association (ABA) sought authorisation to amend the banking code following recommendations from the Hayne royal commission.
Banking code changes
It was reported that the ABA’s proposed amendments aim to improve basic bank accounts and low- or no-fee accounts by prohibiting informal overdrafts unless requested by a customer.
Working on behalf of its 23 members, which includes the major banks, the ABA is also proposing that certain bank account types have no minimum deposits, free direct debit facilities, access to a debit card at no extra cost and free unlimited domestic transactions.
The ACCC also noted that ABA’s code change would prevent default interest being charged on agricultural loans in drought-affected areas.
ACCC’s response
The ACCC reported that it believes additional conditions are required to strengthen these changes.
According to ACCC deputy chair Delia Rickard, “the proposed changes to the code should result in public benefits, by giving customers on low incomes better access to affordable banking, and to address a source of significant harm to farmers experiencing drought”.
“While the ACCC strongly supports these objectives, we are proposing to place extra conditions on ABA members to ensure the changes effectively address the royal commission’s recommendations, and in turn actually deliver these public benefits,” she continued.
It was outlined that under the ABA’s proposal, basic bank accounts might still be able to be overdrawn without a customer agreeing in some circumstances, and banks could continue to charge interest at rates approaching 20 per cent on overdrawn amounts.
Ms Rickard commented that “this could lead to low-income customers getting into debt from overdrafts they did not agree to, which is exactly the kind of problem the Hayne royal commission sought to address”.
The ACCC has proposed that one of its conditions of authorisation would not allow interest to be charged in these cases, or would require any such interest charges to be repaid to the customer.
There are also widespread concerns voiced by consumer groups that the ABA’s proposed changes would not require banks to proactively identify existing customers who would be eligible for the accounts, or even to continue to offer a basic bank account at all.
To address such an issue, the ACCC said it is considering proposing conditions that would require banks to proactively identify eligible customers, including through data analysis, and inform these customers of their eligibility for such services.
The ABA would then be required to report to the ACCC on measures taken to offer them fee-free bank accounts and provide analysis on how many customers have taken up such an offer.
Members of the ABA who currently offer a basic banking product will also be required to continue doing so for the period of authorisation.
The ACCC said feedback is invited on the issues, before it delivers a final determination on the code in November 2019.
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