The Australian Banking Association's Banking Code of Practice (Code) commenced operation on 1 July 2019 and represented a complete re-write of the former Code of Banking Practice 2013, with significant changes, designed to make banking products easier to understand and more customer-focussed, with an objective to better meet community standards and expectations.

The changes to the Code recently approved by ASIC are responsive to Hayne Royal Commission recommendations regarding accessibility of banking products and services (particularly for lower income earners) and to reduce the burden on agricultural borrowers impacted by drought and natural disasters. ASIC's approval follows conditional authorisation by the ACCC of the proposed changes in November 2019.

What has changed?

New Code requirements include:

• Prohibiting charging default interest on distressed agricultural loans while farms are affected by drought or natural disaster;
• Providing inclusive and accessible banking services to those with limited English and those living in remote areas;
• Removing informal overdraft and dishonour fees on basic, low or no fee accounts for concession card holders;
• Introduction of 'basic accounts' with minimum features (including no account keeping fees, no minimum deposits, free direct debit facilities and access to a debit card);
• Clarifying restrictions on non-monetary defaults on small business loans (including a requirement to provide a notice specifying grounds of non-monetary default and specifying a reasonable time period for it to be remedied); and
• Extending protections to guarantors of small business loans (e.g. requirement for bank to pursue the borrower before the guarantor, which previously only applied in relation to consumer loans).

What's next?

ASIC has foreshadowed further changes to the Code, including:

• by 1 January 2021, a review of the Code definition of 'small business', following analysis of small business loan data currently being collected by ASIC to assess whether the current definition is covering an appropriate proportion of Australian businesses;
• by 1 March 2021, an amended Code definition of 'banking services' to address concerns raised by stakeholders regarding the consequences of the current definition for small business coverage; and
• future additional changes regarding informal overdrafts on basic accounts, in line with the ACCC's determination issued on 21 November 2019, granting conditional authorisation to the ABA for 5 years on the condition that interest not be charged on informal overdrafts on basic accounts held by eligible low income customers where customers have not agreed to an overdraft facility, as well as further reporting requirements regarding basic accounts.