The Code is set out in six sections. The most important section for bank customers is Part B: Key Commitments and General Obligations.
KEY COMMITMENTS AND GENERAL OBLIGATIONS
Clause 2 sets out banks key commitments to customers and s 2.1 states what banks will do. It introduces three different cultures the banks must have wrestled with when documenting practices.
motherhood statements – we will continuously work towards improving the standards of practice and service.
ambiguous terms – imprecise words like ‘banking service’ that banks later rely on to conceal breaches and problematic practices, and
significant, high-principled clauses – a commitment to provide information in plain language and promises to act fairly and reasonably.
Later in this paper it’s apparent that the banks had no intention of appointing Code Compliance Monitors to investigate any allegations a bank breached the Code, due to the CEOs constitution. Therefore, so where the motherhood statements because the Code Compliance Monitors were powerless to find banks had breached significant, high-principled clauses in the Code.
Clause 4 is headed ‘Retention of customers rights’.
In addition to rights under the Code, it states customers retain rights they have under Federal Laws, especially the Trade Practices Act 1974, the ASIC Act 2001, Chapter 7 of the Corporations Act and under State and Territory laws.
Clause 3.2 states if the Code imposes obligations on banks, in addition to obligations applying under the law, the banks will also comply with the code.’ However this is problematic. If banks signed contracts with customers having already appointed Code Compliance Monitors without powers to investigate any complaint by any customer, and the bank CEOs had already drafted the constitution, their conduct and the banks may be considered misleading and deceptive, and possibly unconscionable. This is noted in the CBA v Amadio doctrine and ss51AA and 51AC of the TPA.
Whether by statute or contract, the conduct of creditors in their dealings with debtors is subject to increasing scrutiny. According to Mr Michael Quinlan’s report, the aggressive, self-interested pursuit of creditors rights is open to greater risk of being challenged.
Factors implying unconscionability under s 51AC(3) include respective bargaining positions of parties, the extent of disclosure of relevant risks, ability to negotiate terms of the contract and the extent to which parties acted in good faith. Dr Janine Pascoe states that ‘a uniform, national approach to harsh and unconscionable standard form contracts is needed.’
The issue of uniform unfair contract laws has come under the scrutiny of the Standing Committee of Officials of Consumer Affairs national working party that released a discussion paper on 1 February 2004. It noted in recent times it is the standard form contract which has become the focus of allegations of unfairness. Clauses in financial service contracts (including guarantees) were amongst the types of unfair terms noted in the Discussion Paper.
The expanded scope of s 51AC goes beyond indicators of unconscionability under the general principles in s 51AA. Section 51AC of the Trade Practices Act was designed to protect ‘business consumers.’ The expanded criteria reinforces the need to prevent procedural unfairness in pre-transaction negotiations and substantive unfairness in the terms of the contract. Section 51AC factors include requirements of any applicable industry code (s 51AC(3)(g)).
There is little doubt s 51AC has a far-reaching and flexible application. The courts have discretion to apply a requirement of good faith disclosure to surety transactions. Moreover, the lenders conduct can be judged by the normative standards incorporated into relevant industry codes. As discussed, the Code contains ambiguous wording and loopholes such as a lack of definition for ‘complaint‘, which effectively excludes the protective and beneficial safeguards of s 51AC of the TPA.
The Contracts Review Act 1980 (NSW)
The above provisions, in conjunction with s 7 of the Contracts Review Act 1980 enable relief to be granted where a court finds the contract to have been unjust in the circumstances relating to the contract at the time it was made.
ACTING IN GOOD FAITH
The inclusion of factors such as good faith and risk disclosure allows a court to focus squarely on issues of substantive unfairness. It is consistent with increasing tendency by courts to imply a general obligation of good faith into contracts. It is suggested the insertion of these factors actually apply new moral and ethical standards to business dealings.
A court may impose remedies including damages to consumers or businesses that have been hurt. Injunctions can restrain banks engaging in conduct that is in breach of the Code and a court can declare a contract void or vary terms of a contract or make orders requiring money to be refunded. The availability of ancillary orders under s 87 of the Trade Practices Act for s 51AC breaches provides a court with discretion to partially rescind the contract.
The NSWLRC noted this approach could be achieved under the Trade Practices Act. Section 80 of the Act allows a court to grant an injunction in terms that it deems to be appropriate in relation to contraventions of the Act. A court may use its broad powers to grant injunctions to prevent any breaches of misleading and deceptive conduct and unconscionable conduct. However the provisions are untested.
The ACCC has recourse to use injunctive powers of the Trade Practices Act in a guarantee case – ACCC v National Australia Bank Ltd (2001). In this case, the court ordered injunctions against a bank to restrain it from obtaining personal or business guarantees without properly explaining the nature of the guarantee and the need to obtain independent legal advice before signing. The court ordered the bank include a statement in its Internal Lending Manual requiring lending staff to comply with these procedures when obtaining personal guarantees, and to advise lending staff to this effect.
Therefore, although there are remedies within the court system, the Code intended by the Martin Committee to avoid costly litigation was reiterated by Dr Janine Pascoe. In her report, Dr Pascoe stated, ‘taking legal action is the very mischief the proscription of unfair provisions is aimed at preventing.’ Hence, without effective enforcement mechanisms, the Code has not addressed the needs of customers as promised by bank directors when and the Australian Bankers Association published Code (2003).
CODE COMPLIANCE MONITORS
As the Code established the need for a Monitoring Committee in 2003, banks and the FOS appointed its first Chairman, Mr Tony Blunn AO on 17 November 2003. The Australian Bankers Association’s CEO, David Bell and FOS Chair, Ms Jillian Segal announced these two organisations established the Code Compliance Monitoring Committee. Ms Segal stated she looked forward working with the Code Compliance Monitors resolving banks and customers disputes.
Mr Bell emphasised the Code Compliance Monitoring Committee’s role in 2003 and its importance, stating:
The Compliance Monitors will have a very important role especially when it comes to taking action against a bank, naming a bank means members of the public and regulators will know about the breach with resulting damage to the bank’s reputation. The code is contractually binding, so a regulator might even consider action of its own.
On 11 May 2004, amendments were made to Code (2003) to accommodate changes in disclosure requirements for prospective guarantors. Amendments included:
expansion of clause 28.4(d) (i)
addition of clause 28.16, and
slight changes to clause 34.1(i) and (iii) with regard to BFSO replacing the ABIO.
It is apparent that when the Australian Bankers Association published Code (2004), and subscribing banks adopted it, the machinations referred to earlier were entrenched by the banks. They omitted making any reference to competing provisions of the bank CEOs constitution, which was already in place.
Both the modern Codes were inadequate as they lacked compliance and enforcement systems due to significant conflicts of interest. These included working relationships between the banks, the Australian Bankers Association role, the FOS, the bank CEOs constitution and appointment, funding and indemnities of Code Compliance Monitors.
All these relationships were motivated by a need to reduce competition and conceal problematic banking practices, and none were not at arms-length. The fact that banks funded these organisations may have allowed them to mistakenly believe it was their right to determine how it should be managed because it was their Code.
Banks might rebut conflict of interest allegations, as consumer advocates were part of a wider group of bank representatives. However, this fails to overcome the fact that the FOS acted to co-appoint and appoint the Code Compliance Monitoring Committee Chairman and consumer representative. Therefore it could be argued no conflicts of interests existed however both organisations required the Code Compliance Monitors to be bound by the CEOs constitution, suggesting they were inextricably linked.
The existence of the bank CEOs constitution and its capacity to manipulate the Code Compliance Monitors is expanded on in the next chapter. As the Code was intended to be a contract enforceable by law, if provisions are breached, there are no adequate provisions in the courts or within the Trade Practices Act, mirrored in the ASIC Act, to provide wide-ranging remedies for consumers.
Without appropriate legislation and effective regulation this, of course, requires bank customers to use the courts where banks enjoy a decisive ‘resources’ advantage. The cost of winning or losing is relatively incidental to bank executives as court actions are funded by shareholders.
This is not what Martin Committee members intended having expressed a ‘need for cheap, speedy, fair and accessible alternatives to the traditional court system if the customers are to receive justice in their dealings with the banks.’
Senate Committee Report webpage (Sub No. 90): Click Here…