Almost 300,000 customer-owned bank customers have been left worse off after their banks failed to uphold their own compliance code, a new report has found.
The Customer Owned Banking Code Compliance Committee’s 2018-19 annual report found 286,875 customers of Australia’s community-focused banking sector suffered “major personal and financial” consequences after their banks breached their code of compliance.
“The resulting financial impact to customers totalled almost $5 million,” the report said.
“The greatest financial impact was to the 33,903 customers affected by three Code subscribers’ failure to deliver on their promise to provide fair terms and conditions. Breaches of this promise cost customers more than $3.7 million.”
A further 111,692 were stung after their banks failed to provide “accurate and/or timely account statements and balances”, making this the most common type of compliance code breach.
The number of complaints made about bank services subsequently saw a 24 per cent jump on the previous year, bringing the total to 26,899.
“The majority of complaints involved service issues, with almost half (42 per cent) relating to deposit-taking products and a quarter (24 per cent) to payment systems,” the report said.
“Ninety two per cent of complaints were resolved by subscribers within 21 days – up 4 per cent from the previous year. Twenty six per cent of these were resolved in favour of the customer, 41 per cent by mutual agreement and 16 per cent by general feedback.”
The Consumer Owned Banking Association (COBA) – a separate lobby organisation that represents the banks themselves – was unable to comment in time for publication.
Community-focused banks poaching customers
While the number of complaints against customer-owned banks has ticked up in the past year, so too has the number of customers leaving the big four banks in favour of smaller, community-focused financial institutions.
Numbers crunched by consultancy firm KPMG found mutual banks (a form of customer-owned banking) experienced a 7 per cent increase in their loan portfolios in the 2017-18 financial year, meanwhile the major banks managed only a 1.7 per cent lift.
Mutual banks also saw the number of deposit account holders increase by 8.5 per cent in the same period of time.
A similar result was reported by prudential regulator APRA in July, noting at the time that customer-owned banks increased the value of their housing loans by 8 per cent in the preceding 12 months.
The major banks achieved only a 2.6 per cent lift in the same period.
But the customer-owned banking sector’s rising popularity hasn’t been enough to lift profits, with KPMG’s research noting cumulative profits actually fell 6.1 per cent on the previous year.
Code changes on the cards
The Code Compliance Committee flagged its intention to modify the code in its latest annual report.
The committee has already contacted COBA and “independent reviewer” Phil Khoury to discuss modifying the code.
Those recommendations centre around one of the recommendations made by the banking royal commission: For regulator ASIC to have more oversight of industry codes and that breaking some code provisions should become a legal matter.
The Code Compliance Committee disagreed with that recommendation.
“The strength of an individual code’s power lies in its ability to influence continuous improvement within an individual member organisation or within the entire industry, where the member or the industry as a whole works collaboratively with the relevant Code Compliance Committee to effect change and fix problems,” the submission said.
“If codes were to become akin to a piece of prescriptive legislation, there is a real risk that they would become nothing more than minimum service standards.
“Effectively, such black-letter, law-like standards would not keep up with everyday changing consumer expectations.
“Self-regulatory codes can and do deal with changing consumer sentiment and expectations.”