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Consumers need professional, clear and prudent advice when taking out large loans

by Lewis Panther | 24 May 2018
Round three of the royal commission hearings, continuing next week, haven’t generated a call for criminal proceedings. So far. 

But similar stories among the 5,500 online submissions and personal appearances at Melbourne’s law courts keep cropping up — showing a need for a fundamental reforms in the financial services sector.

Case studies heard by the Hayne inquiry this week included franchisees with business loans that they should not have been given.

In one case loan repayments of $8,700 a month were double what a primary school teacher had agreed. 

Another highlighted how the bank of mum and dad is a tricky area where the customer might need to be shown tough love in straight forward language and turned down for a loan.

Commissioner Hayne also heard how one of the banks under scrutiny delayed paying compensation despite admitting being in the wrong.

He expressed his own frustration when trying to get to the bottom of how incentive and bonus schemes were worked out because of the language used.

While the RC won’t be making recommendations for months, it is apparent that there is a groundswell of opinion in favour of widespread change.

The Australian Banking Association’s Code of Banking Practice came under the spotlight, with recent revisions after overhauling what customers could expect from their bank.

The original code was written from the point of of the banks and its language was unclear, according to Phil Khoury, who carried out the re-write and have evidence at the commission.

"It was not clear what the promise was," he said.

Mr Khoury said he had decided its language needed to be framed in terms of what customers should expect form the banks.

Away from the hearings themselves, but with an eye on what needs to happen, Australian Securities and Investments Commission deputy chairman Peter Kell highlighted the need for a cross-industry approach to change on the second day of the latest hearings.

He said: “The Royal Commission is also highlighting the importance of community expectations and community standards. 

“We have seen that an approach based on minimal or technical compliance with the law has, at times, been allowed to override fairness and good consumer outcomes.

“This will only undermine trust. The message is that the financial services industry needs to ensure that your conduct, and your products, take into account issues around community expectations and fairness.”

Standards across the board need to improve, and the industry has to take a proactive role, Kell said in a speech on Tuesday.

“The importance of cross-industry initiatives will only increase. Firms will need to step up to ensure that not only their own standards, but industry-wide practices, are improved.”

FINSIA CEO and managing director Chris Whitehead responded to this week’s hearings by highlighting the industry’s professional duty to deliver fair, transparent and prudent services that customers can trust. 

He said: “The financial services and banking industry as a whole needs to return to the fundamental principle of fairness and to the tradition of prudent stewardship for customer’s finances. 

“The banking and financial services industry needs to be honest, fair and effective so that consumers get a fair deal.  

“Banking and financial services advice needs to be presented to consumers in simple, clear terms with all options, and attendant details and long term consequences included, so that consumers can make informed and confident choices. 

Whitehead also responded to Kell’s speech pointing to the work FINSIA is doing to establish and support industry-wide standards of professional conduct and competency through the association’s proposal for a Professional Banking Council. 

Speaking from the launch in Canberra of new professional banking qualifications, Whitehead said: “Industry led standards, supported where necessary or desirable by regulation is the best approach. Support for professional aspiration and a professional culture will ultimately be far more successful than rigid regulation and a compliance mindset.”  

“FINSIA’s approach is to focus on the individuals in the financial services sector to improve their skills and expertise, standards and ethics and sense of duty to society. This model of self-regulation can restore community trust in banks.”  


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