The Unpleasant Truth About Australian Banking

Clause 10.3 in Code (2003) states ‘any written terms and conditions will include a statement by banks to the effect that relevant provisions of this Code apply to the banking service, but need not set out those provisions.’

On 16 October 2003, Ms Anna Dea, FOSs legal counsel, published a report titled ‘The New Code of Banking Practice – Issues for Litigation Lawyers‘. It sets out the FOSs views on the bank/customer’s legal agreement. The Ms Dea report (and bank funded FOSs position) is therefore one-and-the-same as views embraced by bank directors and CEOs.

Ms Dea’s 2003 report states ‘provisions of the Code are part of the contract between the banks and customers’. Shortly after Ms Dea’s report was published in 2003, the FOS and subscribing banks appointed Mr Anthony Blunn AO as Chairman of the Code Compliance Monitoring Committee.

In 2004, the FOS and banks then appointed another two Code Compliance Monitors. When appointing these monitors all parties ‘in-the-know’ would have known that the principles in the Code differed substantially from the Code Compliance Monitoring Committee member’s responsibilities due to the bank CEOs constitution.

Ms Dea’s report was published at the same time as the constitution was being drafted. Possibly Anna Dea’s report was intended to lessen negative comment about unclear statements in the 2003 Code prior to the FOS and banks appointing the new Code Compliance Monitors.

At the same time, the Australian Bankers Association was publishing PR statements regarding Code (2003)’s high standards. The Australian Bankers Association’s Chair, Mr David Murray, supported by David Bell (the ABAs Chief Executive), published a statement that was not ambiguous:

The Code sets out the banking industry’s key commitments and obligations to customers on standards of practice, disclosure and principles of conduct for banking services. The ABA member banks agreed it was crucial the new Code be extended to cover small businesses. The aim is to treat personal customers and small businesses the same, wherever feasible.

The Code is a valuable safeguard for customers – it will benefit and assist them to have a better understanding of standards banks follow in day-to-day banking and financial transactions even if customers experience financial difficulty. If a bank adopts the Code, it is explicitly committed to act fairly and reasonably towards their customers in a consistent and ethical manner.

The adoption of the Code will be a mark of quality. Customers should be encouraged to check if their bank subscribes to the Code because it is a binding contract between a bank and its customers for which the institution will be held accountable. It is a strong charter because its provisions have contractual effect.

Mr Colin Neave supported the Australian Bankers Association statements. He stated the FOS was independent and in the same media release said:

The Code is a positive initiative for bank customers and will greatly assist the dispute resolution work of the Ombudsman’s office. I will have much greater guidance and support in reviewing a particular case, and it will help me decide whether a bank has observed good banking practices.

Customers were led to believe high banking standards applied to all Code clauses. Allens Arthur Robinson’s lawyer, Michael Quinlan, reinforced this belief stating, ‘the adopting banks will be contractually bound by promises and will be potentially liable for damages for any breach of the Code’. This statement is consistent with wording in the FOSs report by Ms Anna Dea.

Ms Anna Dea states banks have a contractual obligation to comply with all laws and would also give rise to an entitlement to make a claim for loss or damage based on breach of contract. This part of Code (2003) adds to the legal entitlements of existing and prospective customers and means provisions of the new Code could be relied on in breach of contract claims.

The above views appear consistent with amendments to the Trade Practices Act 1974 (Cth), which took effect in 1998. The Act provides a general power to make industry codes enforceable at law. Part IVB of the Trade Practices Act 1974 (TPA) provides for industry codes to be underpinned in the Act and section 51AD gives legislative backing to prescribed industry codes. It provides for the ACCC to act against parties who breach prescribed codes.

Section 51AE provides for industry codes to be prescribed in regulations proposed by the responsible Minister. These provisions, amongst other statutory provisions, will be discussed in more detail in later chapters.


The Corporations Act 2001 (Cth) requires people who carry on a business of providing financial services to hold an Australian Financial Service Licence (‘AFS Licence’). In doing so, they must operate efficiently, honestly and fairly.

They also must ensure their staff and representatives are properly trained and supervised and have proper complaints handling procedures and belong to an independent complaints scheme. This lays the backdrop of fairness in all financial services, which include banking services among others.

The 2003 Code, intended to apply to all individuals and small businesses, creates an obligation on the part of banks to ‘act fairly and reasonably in a consistent and ethical manner.‘ To give effect to this clause, the 2003 version contained more detailed provisions on disclosure, principles of conduct, and periodic code review compared to its 1996 predecessor.

Arguably, the obligation to act with ‘fairness’ towards customers cannot be taken lightly in light of legal developments relating to concepts of fairness and equity. The dictionary meaning of fairness is ‘acting equitably, impartially, in accordance with rules’.

Aside from the dictionary meaning, the NSW Law Reform Commission (NSWLRC) and the High Court considered the concept of ‘fairness’ (or lack thereof). It includes issues of unconscionable conduct in light of decided cases and other statutes that refer to and require a consideration of fairness.

It can therefore be said the concept of fairness, as understood by individual and small businesses has developed beyond limitations of procedural fairness to now include substantive fairness in the actual contractual terms. The NSWLRC refers to the European Directive on Unfair Terms in Consumer Contracts, stating unfair contracts include those ‘contrary to the requirement of good faith… [and] cause a significant imbalance to the parties rights and obligations under the contract.’

As a result of the expanded community and legal meaning of fairness, practices considered acceptable in earlier decades may be ruled as unfair today. Examples of such practices include ‘terms irrevocably binding the consumer to terms with which he or she had no real opportunity of becoming acquainted before the conclusion of the contract.’


The Code states banks have internal (IDR) and external (EDR) procedures for dispute resolution. These provisions are consistent with the duties of Compliance Monitors and the FOS. They require banks to investigate complaints or provide an opportunity for customers to allege they breached the Code in order to resolve complaints rather than having to use the courts.

The following discussion summarises clauses 34 to 36 of the Code (2003).

The Code subscribing banks are obliged to have an internal process for handling a complaint between bank and customer. A dispute exists when a complaint has been made by a customer alleging a breach of the Code that has not been immediately resolved.

The complaints handling process must be free of charge and meet Australian standards. It must also meet time frames specified in the Code and the banks must provide written reasons for their decision. This is set out in s 35.1.

Banks must respond within 21 days of becoming aware of a dispute. Within that time, banks must either complete the investigation and inform the customer of the outcome or advise more time is needed: s 35.3. If banks cannot resolve a dispute within a 45-day period, they must inform the customer of their reason [and] provide monthly progress updates and specify a date when a decision may be expected: s 35.5.

The banks must also have an external process available for resolving disputes which is impartial. This process must be free to the customer and consistent with the ASIC Policy Statement 139 ‘Approval of External Complaints Resolution Scheme’s 36. In practice, subscribing banks are members of the FOS that deals with financial disputes (for claims up to $150,000 in 2003).

In summary, the 2003 Code sets out detailed procedures for banks to comply with when investigating disputes and/or complaints from customers. These procedures should be free of charge and transparent with respect to the investigating officers duties and their findings. This provides an opportunity for parties with limited funds to deal with ‘Code breaches‘ and ‘financial disputes‘ without excessive legal costs.

In other words, clauses 34 to 36 in the Code are intended to provide a level playing field that is fair and reasonable, and accessible to all parties.

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

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