A message from the Chief Executive Officer
Welcome to the December 2018 edition of the CCMC Bulletin.
First I am pleased to welcome the CCMC’s new industry representative, Anne O’Donnell, who has been appointed by the Australian Banking Association (ABA) for a three-year term from late October 2018. Anne has extensive experience in the banking industry and was previously the Chair of Beyond Bank. You can read more about Anne on the CCMC’s website.
Prior to Anne’s appointment, we wished Sharon Projekt farewell. Sharon had been the Committee’s industry representative since 2012 and we thank her for her invaluable contribution to the CCMC for over six years.
As with the whole year, it has been a very busy end to 2018 for the CCMC. It released three significant reports in November:
- a summary report of banks’ compliance with the Code in 2017–18
- the first part of its Financial Difficulty Inquiry, and
- its 2017–18 Annual Report.
You can read more about these reports below.
The recommendations and commentary from these reports, in addition to the case studies contained in this Bulletin, should be treated as guidance for good practice and compliance with the Code for all subscribers.
The ABA has confirmed that the CCMC will become the Banking Code Compliance Committee (BCCC) under the new 2019 Banking Code of Practice. We have now commenced work to transition to the BCCC and will continue this work into the first half of 2019.
In early December, the Committee met with the ABA Council for the first time to highlight its key concerns with banks’ compliance with the existing 2013 Code. We were encouraged that the Council reaffirmed its commitment to the Code and support for the work of the CCMC.
We wish you all a safe and happy holiday season and all the best for the new year.
Chief Executive Officer
Compliance with the Code of Banking Practice 2017–18
On 29 November 2018, the CCMC released the results of banks’ Annual Compliance Statements for 2017–18. The CCMC reported that banks breached the Code 10,123 times in 2017–18, and these self-reported breaches affected more than 3.4 million people, costing them more than $95 million.
The number of breaches was almost 10% less than last year, but the report said this was unlikely to reflect improved compliance. The CCMC remains concerned about banks’ inadequate monitoring and reporting processes.
The report said that banks too often failed to proactively compensate customers affected by a breach. For the most part, compensation was paid to customers only after a directive from the Australian Securities and Investments Commission (ASIC) or the Financial Ombudsman Service (FOS, now the Australian Financial Complaints Authority or AFCA). This was particularly evident when banks breached their responsible lending obligations.
Some banks that continued year after year to report low breach numbers could not demonstrate robust compliance monitoring processes. One said its breaches were immaterial and did not warrant reporting; another acknowledged that while breaches had probably occurred, it could not explain why these had not been reported to the CCMC.
The report, Compliance with the Code of Banking Practice 2017–18, said that the main self-reported breaches were privacy and confidentiality (44%) and provision of credit (25%). Banks stated that 93% of all the breaches were due to human error.
Financial Difficulty Inquiry
Banks have financial difficulty programs that, for the most part, meet the obligations under the Code, according to the CCMC’s inquiry, Assisting customers in financial difficulty (Part 1).
The inquiry made 14 recommendations for improvements in the way banks help customers overcome their financial difficulty. The CCMC has set expectations that banks should:
- train all customer-facing bank staff, including lending staff, to be able to identify customers in financial difficulty
- adopt flexible approaches to assistance, considering and providing long term assistance where it is needed and appropriate, and
- promote a culture of non-judgement and compassion when assisting customers.
The inquiry also found that job-related issues, usually reduced income, reduced working hours or unemployment, were the main reason for people seeking financial difficulty assistance (42% of the total). Other reasons included accidents, illness (including mental illness), family separation and family violence. Banks grant about seven in ten requests for assistance a year.
In 2015, the CCMC conducted an initial own motion inquiry investigating banks’ compliance with the Code’s financial difficulty obligations. This follow-up inquiry was conducted partly to help banks transition to the new 2019 Code.
CCMC Case study
Thousands of customers were sent incorrect information about financial difficulty arrangements – in breach of Code clause 32.1
In November 2016, a community legal centre approached the CCMC with concerns about how one bank was communicating with its customers about financial difficulty arrangements.
The community legal centre told the CCMC that the bank was writing to customers, advising them that they had been approved for financial difficulty assistance and would not receive further collections calls. However, the bank also advised customers that it may issue default or other legal notices, close the account or default list the customer.
The CCMC’s investigation found that for three years, the bank had been issuing this letter to all
customers with an approved financial difficulty arrangement. Over this time, the bank estimated, about 75,000 customers had received the letter.
The bank acknowledged the breach of Code clause 32.1 and removed the letter from circulation.
Don’t set and forget – all communications require regular review for compliance
The CCMC is very concerned that this letter remained in circulation for such a long period, without being identified by the bank’s compliance or legal teams. The bank’s oversight – both in approving the letter and allowing it to remain in circulation for so long – demonstrates a breakdown in the bank’s financial difficulty and debt collection compliance framework.
The CCMC puts banks on notice that all customer communications must be regularly reviewed against legal, regulatory and Code obligations.
This case study was originally published in the CCMC’s 2017–18 Annual Report.
2017–18 Annual Report
The CCMC published its 2017–18 Annual Report on 29 November 2018. It describes our work between July 2017 and June 2018 and highlights:
- Breaches of the Code self-reported by banks.
- Data related to internal dispute resolution and requests for financial difficulty assistance.
- The CCMC’s work regarding Code breach reporting and the cancellation of direct debits.
- Investigations into alleged Code breaches.
The 2019 Banking Code and the BCCC
In September 2018, the ABA published the new 2019 Banking Code of Practice, which has been approved by ASIC under section 1101A of the Corporations Act 2001. The 2019 Code is available on the ABA’s website and will come into effect on 1 July 2019.
In November 2018, the ABA wrote to the CCMC to confirm that it had finalised the Charter for the Banking Code Compliance Committee (BCCC), which will be established to monitor banks’ compliance with the new Code. The BCCC Charter confirms that on 1 July 2019:
- the CCMC will be dissolved
- the independent chairperson and members of the CCMC will become the independent chairperson and members of the BCCC, and
- the CEO and Secretariat of the CCMC will become the CEO and Secretariat of the BCCC.
Accordingly, the CCMC has commenced work to transition to the BCCC by July next year. This work will involve:
- any necessary changes to the Committee’s governance arrangements
- the development of new operating procedures
- providing guidance to banks on the new Code
- monitoring banks transition to the new Code, and
- training and engagement with stakeholders.
We will be launching a new holding website for the BCCC in early 2019 which will include the BCCC’s Charter.
On 5 December, the Committee and CCMC’s CEO met with the ABA Council in Brisbane, the first time the CCMC has met with its members.
The CCMC sought assurances from the Council’s members about their commitment to the Code and the role of the CCMC. The CCMC was encouraged by the responses received and, as a result, will ensure that senior management within each bank is kept informed about their banks’ compliance with the Code and is accountable for improving it where necessary.
The CCMC has met regularly with the ABA and ASIC to discuss its work program and ongoing developments regarding the 2019 Code and the associated governance arrangements. In addition, we have met with current Code-subscribing banks and some of the banks that will adopt the 2019 Code to commence discussions about their transition.
As part of the financial difficulty inquiry we met with financial difficulty staff at several banks along with representatives from consumer organisations, including the Financial Rights Legal Centre, Good Shepherd, Consumer Action Law Centre, West Justice and Uniting Care Kildonan.
Uniting Care Kildonan also assisted the CCMC to conduct its first consumer focus group. This and future focus groups will assist us to understand current and emerging customer concerns in the banking industry.
Along with the CCMC’s regular engagements with banks, consumer representatives and AFCA, members of the Committee and its staff also:
- met with all subscribing banks for our annual onsite visits
- attended the Credit Law conference in Queensland, and
- presented at the FOS Banking and Finance Forum in Sydney.
The CCMC is currently arranging its Annual Forum for 2019. It is scheduled to take place in Melbourne in early March.
Guarantees – investigations and inquiry
The Code’s guarantees obligations are currently an area of focus for the CCMC. In addition to two ongoing investigations into compliance with the guarantees obligations at two banks, the CCMC is planning to conduct an industry wide inquiry in early 2019.
The CCMC last conducted a targeted monitoring activity into banks’ compliance with the guarantees obligations in 2012. The guarantees provisions are some of the Code’s most important and unique obligations (i.e. standards not replicated in legislation), and the CCMC considers that the inquiry will provide the opportunity to review current practice and share its findings as current and new subscribing banks transition to the 2019 Banking Code.
The CCMC’s 2018-19 Workplan sets out its intention to collect data for this inquiry by 20 April and to report by 31 July 2019.
If you have any information to contribute to the guarantees inquiry please contact the CCMC’s Compliance Manager, Donna Stevens.
Looking ahead to 2019
In addition to the CCMC’s transitional work and the guarantees inquiry, ongoing and upcoming activities include:
The CCMC will publish an update on its monitoring of banks’ compliance with the direct debit obligations. This will include the results of a larger-scale mystery shopping activity and the steps banks have taken to implement the Committee’s 2017 recommendations. The report is due to be published in the first quarter of 2019.
Financial Difficulty – Part 2
Work is underway on Part 2 of the Financial Difficulty inquiry and we anticipate publishing the report in the first half of 2019. This report will focus on vulnerable customers, natural disasters, proactive identification of customers in financial difficulty, treatment of joint debtors and guarantors, and small business and agribusiness.
Over several years, banks have reported that the primary cause of Code breaches is ‘human error’ and the majority of these breaches are corrected through training. Noting the importance placed on training, the CCMC will be conducting a research project into training to identify best practice principles.