The Unpleasant Truth About Australian Banking

As the Richard Viney Code review (2003) was drawing to an end, the Joint Consumer organisations and ASIC expressed a preference for having an independent, well-resourced code-monitoring agency. It would have a capacity to impose a wide range of sanctions for Code breaches.

In supporting the Joint Consumer organisations and ACIC, Richard Viney also championed the need for effective monitoring and sanctions.

Code Monitors Established

In its final response submission, the ABA agreed to the establishment of the Code Compliance Monitoring Committee and appointment of Code Monitors, with only a naming sanction for repeat offenders.

The criteria the Australia Bankers Association wanted for the monitors, included:

a Code Compliance Monitoring Committee set up within the FOS scheme and agreement by the FOS to do this would be necessary;

the function, powers and composition of the Code Compliance Monitoring Committee would be spelt out in the Code and these could change if the Code was changed;

the Code Compliance Monitoring Committee would operate separately from the FOSs dispute resolution function so as not to adversely affect that function; and

the Code Compliance Monitoring Committee would comprise three people:

One (1) having had relevant experience at a senior level in retail banking appointed by subscribing banks; and

One (1) having relevant experience and knowledge as representative of the general body of bank customers, appointed by the FOS; and

One (1) having experience in industry, commerce, public administration or government service, appointed jointly by the FOS and the banks.

The Code Compliance Monitors would employ a small secretariat to service them. All decisions about bank compliance with the Code would be the responsibility of the Compliance Monitors. To ensure the Code Compliance Monitors operated diligently, efficiently and effectively (and within their powers), they would be required to commission an independent annual audit of their activities and for that audit report to be lodged with ASIC for publication. The agreement of ASIC to perform this role would be required.

Banks would continue to prepare their own annual compliance reports and to lodge them with the CCMC.

The Code Compliance Monitors functions and powers would be to:

monitor compliance by comparing banks annual reporting of compliance with the Code Monitors experience gained through shadow shopping and the incidence of complaints from customers about banks non-compliance; and

receive complaints about breaches of the Code and refer them to the banks concerned for response and remedial action where necessary; and

report annually on the level of compliance; and

report in its annual report un-remedied, serious or systemic breaches by a bank with discretionary power to name the non-complying bank.

In the Final Report, Richard Viney ended up with a general recommendation for a monitoring mechanism and sanctions having the criteria detailed in the proposal set out in the ABA Final Response.

Dispute Resolution Procedures

The Code (1996) dealt with both internal and external dispute resolution, also called alternative dispute resolution. However, in the Joint Consumer Submission, the Australian Consumers Association and ASIC were highly critical of this. ASIC stated:

These provisions were developed at a time when IDR and ADR were relatively new concepts in Australia. However, since then, the role of industry dispute resolution and the characteristics of effective dispute resolution have advanced considerably. In the light of this experience, we take the view that the current provisions of the code are inadequate and require significant improvement if they are to meet consumers needs.

ASIC cited a survey that surfaced concerns about:

poorly trained call centre and bank branch staff,

lack of communication and consistency between different banking sections,

lack of consistency in information provided by the institution staff of banks,

lack of response to enquiries and complaints or undue delay in response,

refusal to compensate or to adjust accounts for losses suffered as a result of institutional error,

reluctance to refund overdraw fees where the overdraw resulted from institutional error, and

lack of referral to external dispute resolution in cases where a complaint or dispute was not resolved.

These allegations make reference to actions by mega-bank corporations believing they were untouched by regulators supervising compliance of fair and just laws, and were beyond reach of consumers damaged by the mega-banks dishonest actions and practices.

The Joint Consumer Submission and ASIC pointed to deficiencies in the definition of a dispute and lack of time frames for resolution of disputes at the Internal Dispute Resolution stage. Both industry bodies were concerned about an uneven level of bank compliance with obligations to make information available for effective Internal Dispute Resolution processes.

Richard Viney found wide variances in levels of compliance with Internal Dispute Resolution disclose requirements. With regard to External Dispute Resolution schemes, ASIC made favourable comments about the FOS scheme. ASIC noted that despite the absence of an express requirement for FOS to apply criteria of fairness and good industry practice, the FOS terms of reference had included this requirement.

In ASIC’s submission, it suggested the internal dispute resolution processes should be consistent with Australian Standard AS 4269-95 and that the Code lay down specific time periods for completion of investigations, and more detailed requirements for keeping complainants informed during the investigation process.

Periodic Review – Forum for Exchange

The Code (1996) required the need for a review every three years to allow interested parties to express their view. However this was based on good intentions without any details as to mechanics of the review and external representation or consultation. A number of consumer submissions criticised the failure of the process to provide for consumer and stakeholder representation in the review body.

The Consumer Credit Legal Services submission raised lack of an established forum for the discussion of banking issues by consumer representatives with the industry:

Unlike some other industries, such as insurance at a national level and the energy industry in Victoria, there is a lack of any forum where consumer representatives can raise issues with the banking industry. None of the relevant regulators, the industry association or FOS offers such a forum. There is a need for a forum in which the Code and current systemic banking problems can be regularly discussed between representatives of consumers, the industry and the FOS.

In carrying out his report, Richard Viney welcomed Consumer Credit Legal Services proposal for the establishment of a formalised forum ensuring regular discussions. The ABA Final Response supported the concept of independent reviews every three years in consultation with a range of stakeholders and reported progress on the establishment, by the ABA, of a consultative forum.

Self-Regulation: Consumers Beware

When Richard Viney was appointed to conduct the Code (2003) review, the government was conducting its own review to determine the effects of moving towards self-regulation in the banking sector.

In a speech to the Society of Consumer Affairs Professionals in Business, Minister, Joe Hockey, confirmed the government’s intentions, stating:

The government went to the last election with a commitment to encourage industry to develop effective approaches to self-regulation. Self-regulation must benefit Australian consumers. It is said to work well when it comes to good corporate governance or the regulation of markets where integrity is directly measured in shareholder value’

Minister Hockey discussed the government’s philosophy relating to consumers, and reinforced its policies stating protection is the cornerstone of our philosophy. The Minister specified four meritorious and good intentioned elements of government’s thrust towards consumer sovereignty, being:

protection, consumers must feel sure the Government has in place a legal system able to protect them,

choice, an availability of a wide range of products and services,

sufficient Information & ability to choose between products in an informed way, which will depend on the provision of information that is relevant, transparent and easy to understand, and

effective redress & an ability to quickly remedy transactions that are unfair or when standards are not met, sometimes it might be appropriate for the ACCC to use enforcement powers of the TPA.

The Minister’s belief in the effectiveness of a self-regulation model, wherein it was, in his and the government’s view, able to deliver cheap and reliable ways to solve disputes and was, above all, better for consumers. It resulted in the formation of the Task Force on Industry Self-Regulation, given responsibility of finding best practice in self-regulation that would ultimately improve market outcomes for consumers.

After completing this review, principles underpinning the belief self-regulation works best, were identified as requiring:

consultation between industry, consumers and government;

broader coverage within an industry;

effective procedures for resolving disputes with proper sanctions for businesses that breached the scheme; and

the scheme needs to be regularly reviewed by an independent body.

It might be said the outcome of the Richard Viney and Task Force on Self-Regulation reviews, together with the influence of key players within government, paved the way for government to ultimately support its shift into self-regulation.

This seems to contrast views presented to the legislators by the Martin committee and the Wallis Inquiry. However, increasing support within government apparently made it easy for banks, acting in a cartel like manner with one voice, to develop a Code that could later be argued made them accountable to no party other than to themselves.

Senate Committee Report webpage (Sub No. 90): Click Here…

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