Self-reported breaches and significant breaches increased from last year, indicating that banks continue to enhance staff awareness of the Code and develop and refine their breach reporting frameworks.
Effective identification of breaches is only the first stage in dealing with Code non-compliance. The CCMC encourages banks to use improved identification processes to address issues within their banks. This will not only improve compliance, but also the standard of banking services provided to customers.
Remote Indigenous communities
This year, all banks reported that they have processes and procedures in place to meet Code obligations regarding service to customers in remote Indigenous communities. The CCMC will continue in 2016–17 to understand and share areas of good practice among all banks for servicing remote Indigenous communities.
During the reporting year, the CCMC published its Own Motion Inquiry report into financial difficulty. The inquiry identified that all code-subscribing banks have procedures in place to try to help customers overcome their financial difficulties with credit facilities they have with their bank. In addition, banks confirmed it is their policy to engage actively and co-operatively with customers to ensure effective outcomes.
The report made several recommendations to improve compliance and banks’ engagement with customers, including:
- Ensuring processes and procedures are applied consistently for all customers, including those who are not represented by a consumer advocate.
- Ensuring processes are appropriate for customers with particular issues such as poor mental health or family violence.
- Considering whether procedures are adequate to avoid making requests for information that may be difficult or time consuming for customers to provide.
Banks reported that they have incorporated many of these recommendations into their procedures, which are discussed later in this report.
Provision of credit
Provision of credit obligations now account for the largest proportion (29 per cent) of self-reported Code breaches. Credit products and issues related to the provision of credit also account for the majority of CCMC investigations.
Recommendations made by the CCMC in its 2016 Own Motion Inquiry are designed to improve banks’ compliance with this aspect of the Code, while recognising the large number of credit applications dealt with across the banking sector. The CCMC encourages banks to review their systems and procedures, improving the outcomes for consumers through better decisions when providing credit.
Investigations – Delegated decisions
The Independent Chair of the CCMC exercised the powers delegated to him by the Committee under the Mandate to finalise 27 cases that did not involve the Determination of a Code breach. This power was exercised where the bank involved admitted to a breach and took corrective action to prevent a re-occurrence, where another forum such as FOS or a court had already made a decision about the Code breach, or it was clear that a breach had not occurred.
On seven occasions, the CCMC was unable to investigate allegations because the consumer notified the CCMC more than 12 months after becoming aware of the events which formed the basis of the allegation (the 12 month rule). The CCMC has raised the limitations of this time frame in its submission to the reviews of the Code and the CCMC currently in progress.
Providing credit without verifying liabilities
Tom contacted the CCMC because he was concerned that his mother, Gillian, had been provided with a level of credit that her income and living expenses could not support. The CCMC investigated whether there had been a breach of the provision of credit obligations (clause 27).
When Gillian applied to the bank for a credit card with a $20,000 limit, the bank applied its standard credit assessment, which uses automated systems to verify income, expenses and liabilities.
The bank’s automated systems identified that Gillian’s stated income was considerably above the income benchmark for her job. The bank contacted Gillian’s accountant for further details and the income figure used by the bank to assess the ability to repay the credit was subsequently revised downward by 30%.
Gillian also declared that she had mortgages for both her home and an investment property, but the monthly repayment amounts detailed on the application form by Gillian were considerably lower than would be expected, given the value of the mortgages. However, the bank did not make further inquiries about the true cost of the mortgages and provided Gillian with the full $20,000 credit limit.
Had the bank used a more realistic liabilities and expenses figure along with the lower income, it would likely have made a different decision regarding the amount of credit it provided.
The CCMC considered that the discrepancies with Gillian’s income was a red flag which should have prompted a diligent and prudent banker to make further inquiries into all expenses and liabilities before deciding whether to provide credit to Gillian. The CCMC therefore determined the bank had breached clause 27 of the Code.
The CCMC used some of the issues identified in this case regarding verification of income, expenses and liabilities to scope its Own Motion Inquiry into provision of credit.