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Banks Face Public Scrutiny Over Financial Support Amid Cost of Living Crisis

Banks in Australia are under increasing pressure to step up their support for customers struggling with financial difficulties as the cost of living continues to rise. Recent controversies, such as charging fees to deceased customers and abruptly closing branches, have already sparked public backlash against some of the major banks. In response, the Australian Banking Association has introduced an updated code of practice, set to take effect on Friday, which aims to restore trust and provide stronger protections for customers. The new guidelines include expanded definitions of small businesses, increased support for those facing financial hardship, and stricter accountability measures for banks that fail to comply. This move comes as banks face the possibility of being "named and shamed" for not meeting their obligations to customers in need.

Expanding Support for Small Businesses

One of the key updates to the code is the redefinition of what constitutes a small business. Under the new rules, an additional 10,000 businesses will now fall under this category, making them eligible for tailored support. Specifically, businesses will be allowed to carry up to $2 million in debt before they lose their classification as a small business. This change is designed to ensure that more enterprises have access to the assistance they need, particularly during challenging economic times. By broadening the scope of small businesses, the updated code aims to create a more inclusive and supportive environment for entrepreneurs and small business owners who are often the backbone of the economy.

Enhanced Support for Financial Hardship

The updated code also places a strong emphasis on helping individuals and businesses experiencing financial hardship. Banks are now required to provide clearer and more robust support mechanisms, such as flexible hardship arrangements, to help customers get back on their feet. These arrangements could include temporary pauses on loan repayments, reduced payment plans, or other forms of financial relief. Anna Bligh, the chief executive of the Australian Banking Association, highlighted that the new code brings greater clarity to how banks will assist customers in times of difficulty, ensuring that they are treated fairly and with empathy. This shift reflects a growing recognition of the need for banks to act as responsible corporate citizens, especially during periods of economic strain.

Promoting Inclusivity and Accessibility

Another significant aspect of the updated code is its focus on inclusivity and accessibility. Banks are now expected to take additional steps to ensure that their services are accessible to all customers, regardless of their background or circumstances. For instance, the code includes provisions for providing external support, such as translators or other resources, to customers with limited English proficiency. These measures are designed to break down barriers and ensure that everyone has equal access to banking services and support. By prioritizing inclusivity, the updated code aims to address some of the systemic inequalities that have long plagued the banking sector.

Holding Banks Accountable

While the updated code is not legally enforceable, it introduce new mechanisms to hold banks accountable for their actions. The Banking Code Compliance Committee will now have the authority to report serious or systemic breaches of the code to the Australian Securities and Investments Commission (ASIC). Public naming and shaming is also a potential consequence for banks that fail to meet their obligations under the code. This approach relies on the power of transparency and public accountability to drive compliance, rather than relying solely on legal penalties. By shining a light on banks that fall short, the updated code aims to encourage greater transparency and responsibility within the industry.

Building Trust and Moving Forward

The introduction of the updated code of practice is a step towards rebuilding trust between banks and their customers. By setting clear standards and expectations, the Australian Banking Association is signaling its commitment to creating a more customer-centric banking industry. While the code is not a silver bullet, it represents a significant effort to address some of the key challenges facing customers today, from financial hardship to accessibility. As the cost of living continues to rise, the updated code provides a framework for banks to step up and support their customers in meaningful ways. Whether through expanded support for small businesses, enhanced hardship arrangements, or improved inclusivity, the changes aim to create a fairer and more compassionate banking system for all.