The Unpleasant Truth About Australian Banking

As suggested earlier, a get-out used by some, if not all Code subscribing banks is to confuse the words complaint and dispute. Glancing at the Code Compliance Monitoring Committee’s annual reports its evident few complaints are ever investigated by them. It seems the banks use their own interpretation of clause 40 to stonewall complainants.


Part F section in the Code sets out how banks and Compliance Monitors can claim to be confused by key words. The banks use a definition to define a ‘banking service’ and in Part F we see this actually means ‘any financial service or product’. The banks fail to use the actual phrase in the Code text without an explanation.

This allows the banks and Code Compliance Monitors considerable latitude selecting the complaints they will investigate. However, by looking back at the evolution of the Code (2003), its not clear if subscribing banks ever intended the Code Compliance Monitors to investigate any allegation from any person that a subscribing bank breached the Code.

To go further, Code (2003) includes ambiguous words suggesting the banks had little interest in handing over control of complaints handling to the Code Monitors. The banks believe clause 40 provided them with an opportunity to promote motherhood statements like ‘acting fairly and reasonably towards [you] in a consistent and ethical manner’ without ever intending to deliver on the promise.

The Code Compliance Monitoring Committee members and the senior executives apparently agreed to work with this obscurity when appointed. The banks made commitments and promoted them with shareholder funded PR, however, the Code Monitors still had a duty to monitor the banks compliance.

There is an increasing body of evidence suggesting subscribing banks never intended to investigate all complaints when publishing the Code (2003). There is evidence that most subscribing banks have used ambiguous wording and jurisdiction issues to avoid having to comply with s 35 duties.

The jurisdiction issues can be used as follows:

A customer alleges a bank acted disingenuously or dishonestly and breached the Code and makes a complaint to the bank’s IDR department;

The bank provides a shabby response or ignores it, deliberately breaching s 35 by not properly investigating the complaint;

The customer then refers the complaint to the Code Compliance Monitoring Committee alleging the bank breached s 35.7;

The Code Compliance Monitors refer the complaint to the bank which claims it either investigated the complaint or the information is privileged;

The Code Monitors advise this is a dispute and s 40 notes disputes relate to a banking service, which is defined as a financial service or product.

Compliance Monitors respond stating they have no jurisdiction under s 34 to investigate specific allegations regarding breaches of the Code.

The ambiguous wording in Code (2003) is engineered so customers either walk away from the allegations or return to the pre-Martin era in 1991 and use courts to enforce customers rights.

The banks muddied-the-waters because the Code sets out the bank/ customer contract but very few clauses relate to a ‘financial service or product‘. Banks then appointed Code Compliance Monitors without powers to comply with s 34 and investigate any allegation a bank breached the Code because virtually all complaints fall outside the narrow definitions in clause 40.

Likewise, by providing an opportunity for banks to breach s 35 and preclude the Code Compliance Monitors from investigating and naming banks that breached the Code. It appears bank directors and the Australian Bankers Association initiated this complex arrangement to conceal misconduct by undermining Code (2003) principles, intended to protect individual and small business customers.

‘ Just Following Orders’

An example of how this practice is set out by Westpac in a letter to its customer dated 1 September 2009. Westpac’s Senior Counsel, Dispute Resolution Group, Ms Felicity Booth, states in her signed letter:

In your letter you articulate your complaint alleging that ‘if the constitution is to be relied upon then the Code was misrepresented to’¦ customers by failing to incorporate its effects on bank which breached the Code’.

We note that the Code identifies a number of standards of practice, disclosure and principles of conduct with respect to banking services. We further note that clause 35 states we will have an internal process for handling all disputes with you.

The Code identifies a dispute as being a complaint in relation to a banking service and defines a banking service as any financial service or product provided by us to you.

The complaint you articulated does not appear to fall within the terms of the Code given it is not a complaint with respect to a banking service.

Ms Booth fails to comment on Westpac’s commitments in s 2.1(d) stating the bank will provide information to you in plain language’ and s 35.7, its ‘dispute resolution process is available for all complaints other than those that are resolved to your satisfaction’.

The Westpac views are in stark contrast to stated intentions of the Code Compliance Monitors when appointed in 2004. The 2004/ 2005 Annual Report states:

The Code sets standards of good banking practice and requires banks to continuously work towards improving their standards of practice and service in the industry. The establishment of [the Compliance Monitors] represents a significant addition to the banking landscape.

The Code Compliance Monitoring Committee was established under a unique section of Code (2003) which requires the creation of a body that is specifically charged with monitoring compliance with the Code. Their role is to monitor compliance with the Code’¦ and to investigate complaints that allege the Code has been breached.

The Code Compliance Monitors fulfil their role by accepting, investigating and making determinations on any allegations by any person that the Code has been breached.

The Code Compliance Monitors views were further supported by their document headed ‘How do I complain?’ The document directs complainants to their email address . It states their duties were ‘established to monitor and ensure banks’ compliance with the Code and they can investigate any complaint from any person or organisation that a bank has breached its obligations under the Code.’

This interpretation was the subject of an internal memorandum sent to subscribing banks on 15 November 2004 by Ms Barbara Schade, Executive Director, Code Compliance Monitoring Committee, stating:

The Code Compliance Monitoring Committee defines a dispute as being a ‘complaint by customers that is not resolved at the first point of contact, and escalated to a complaints handling or customer relations area of the bank. This is slightly different to the FOSs definition of disputes and it explains the differences between our compliance role and the FOS dispute-handling role.

There were differences between the policies of banks and the Code Compliance Monitoring Committee’s role following the publication of Code (2004) because the appointment strength of the legislation and shortcomings of the application of the Code Compliance Monitors powers.

The ASIC Regulatory Guide 183 (RG 183) empowers ASIC to enforce administrative mechanisms to address customer complaints about breaches of the Code. In RG 183, clause 73, these administrative mechanisms were stipulated as:


RG 183.73: A code applicant must establish that the code is effectively administered. For a code to work effectively there needs to be an administrative body charged with overseeing the operation of the code that:

is independent of the industry or the industries that subscribe to the code and provide the body’s funding (e.g. with a balance of industry representative and consumer representatives and an independent Chair); and

has adequate resources to fulfil its functions and ensure that code objectives are not compromised.

RG 183.74: Without such a body, there is a risk that oversight of industry compliance with the code will be reduced, systemic problems will not be identified, and industry and consumer awareness of the code will be low.

RG 183.75: The code administration body should also be responsible for:

establishing appropriate data reporting and collection procedures;

monitoring compliance with the code;

publicly reporting annually on code compliance;

hearing complaints about breaches of the code and imposing sanctions and remedial measures as appropriate;

reporting systemic code breaches and instances of serious misconduct to ASIC;

recommending amendments to the code in response to emerging industry or consumer issues, or other issues identified in the monitoring process;

It seems ASIC’s mandate provides it with overarching policies that ensure industry codes’ are not inconsistent with Commonwealth legislation. RG 183.27 incorporates the Corporations Act 2001 (Cth) and states that codes ‘must not be inconsistent with the Act or other relevant Commonwealth laws for which ASIC is responsible’.

It states ASIC may only approve a code of conduct where:

The code is not inconsistent with the Corporations Act or any other law of the Commonwealth under which ASIC has regulatory responsibilities (see RG 183.28-RG 183.30); and

ASIC considers that it is appropriate to approve the code given:

The ability of the applicant to ensure that persons who claims to comply with the code will comply with it (see RG 183.310); and

The desirability of codes of conduct being harmonised to the greatest extent possible (see RG 183.32-RG 183.35).

The ASIC Regulatory Guide 183 provides ASIC jurisdiction to determine if the codes are inconsistent with the Corporations Act 2001 (Cth).

In Part 7.10 headed ‘Market Misconduct and Other Prohibited Conduct’, the Act prohibits false and misleading statements, dishonest conduct and misleading and deceptive conduct (ss 1041E, 1041G, 1041H) which suggests ASIC’s responsibility extends beyond the code.

ASIC can investigate factual circumstances and behaviour related to the code in order to ensure such conduct is not inconsistent with the Act. As such, it seems that RG 183 relates to ASIC’s mandate and jurisdiction to investigate bank parties conduct with regard to practices if there are grounds for finding them guilty of prohibited conduct as set out under the Corporations Act.

Of particular relevance in the context of unconscionability is clause 2.2. It states the banks ‘will act fairly and reasonably towards you in a consistent and ethical manner. In doing so we will consider your conduct, our conduct and the contract between us.’

Also relevant is clause 25.2. It states ‘with your agreement, we will try to help you to overcome your financial difficulties with any credit facility you have with us. We could for example, work with you to develop a repayment plan.’

It then seems relevant to review the growing trend of regulations prescribing the contractual terms and conditions and, in particular, how each one defines and deals with the concept of ‘unfairness and unconscionability‘.

Section 12CC of ASIC Act 2001 mirrored in s51AC of TPA 1974

The ASIC Act and the Trade Practices Act tackle boundaries of substantive unfairness. Section 51AC of the Trade Practices Act 1974 (Cth) (TPA) makes reference to conduct and circumstances courts may have regard to, including:

The relative strength of the bargaining positions of parties, that looks at whether as a result of the conduct, the debtor was required to comply with conditions that were not reasonably necessary to protect the legitimate interests of the creditor;

Undue influence, pressure or unfair tactics;

Failure to disclose intended conduct that would affect the debtor’s interests or risks that the creditor should have foreseen that would not have been apparent to the debtor; and

The extent to which the creditor was willing to negotiate the terms and conditions of any contract and the extent to which the parties acted in good faith.

Ms Elizabeth Sexton, General Counsel, FOS is reported to have said that the Code has the potential to be relevant to causes of action brought under s12CC ASIC Act.

Of importance is that courts may take note of requirements of any ‘applicable industry code’ or ‘any other industry code’ if a debtor acted on a reasonable belief that a bank would comply with that Code.

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

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