Banks to begin rolling out financial abuse requirements

Lenders have welcomed the changes and have now begun informing the industry of new requirements that will need to be taken into account when writing a loan.

What is changing

Chief among these changes is a requirement for those in the lending market to “take extra care with customers who may be vulnerable”.

The Code of Practice calls on banks to “take extra care” with vulnerable customers, including those who are experiencing:

a) age-related impairment;

b) cognitive impairment;

c) elder abuse;

d) family or domestic violence;

e) financial abuse;

f) mental illness;

g) serious illness; or

h) any other personal, or financial, circumstance causing significant detriment.

The code outlines that banks will commit to training staff to act with “sensitivity, respect and compassion if [a customer] appear[s] to be in a vulnerable situation” and – if the above concerns are raised – “work with [them] to identify a suitable way for [them] to access and undertake [their] banking”.

The code reads: “When we are providing a banking service to vulnerable customers we will:

a) be respectful of your need for confidentiality;

b) try and make it easier for you to communicate with us;

c) provide appropriate guidance and referrals to help you to maintain, or regain, control of your finances; and

d) refer you to external support, if appropriate.”

Updates rolling out

Given that nearly 60 per cent of mortgages are now written by the third-party channel, lenders are also now updating their broker forms to ensure that brokers are aware of these new requirements.

In a joint statement from the ABA, Mortgage & Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA), the bodies commented: “The ABA, MFAA and FBAA met [on Wednesday morning] to discuss the roll out and how banks and brokers can best meet their obligations under the new code.

“The new Banking Code of Practice introduces a range of new measures to make banking products easier to understand and more customer focused.

“Brokers and banks both recognise the need to identify customers who may be experiencing vulnerability and act with sensitivity, compassion and respect.

“Bank staff and brokers will need to be properly trained to meet their obligations under the new Banking Code.

“The MFAA, FBAA and the ABA are working together to ensure that the expectations on brokers are reasonable and realistic and that they have the support and resources they need to recognise the signs of potential vulnerability and understand the special protections in the code for co-borrowers and guarantors.”

Earlier this month, NAB revised its lending policy in accordance with provisions outlined under the new Banking Code of Practice. This outlined that brokers will be required to complete a financial abuse declaration form for new co-borrower arrangements. This will be included in a new co-borrower acknowledgement form on ApplyOnline.

Similarly, the Commonwealth Bank has issued a broker update outlining that for each borrower, brokers will need to confirm that there “did not appear to be any signs of financial abuse”.

The major bank has said it will be updating the home loan on-boarding form (002-829) to reflect new Financial Abuse and Everyday Banking statements and will update CommBroker to include new financial abuse guidelines.

A CBA spokesperson told The Adviser: “The Australian Banking Association’s Code of Practice is fully supported by the Commonwealth Bank. It represents one of the steps the bank is taking to be a better bank for brokers and our customers.

“We are working closely with our brokers to provide them with all of the tools and support they need to be able to adhere to the code.”

BOQ has also told brokers that they should familiarise themselves with the signs of vulnerability and highlight any concerns in their file notes. A new checklist will be rolled out in July (and released in ApplyOnline) to ensure compliance with the code.

“The broker declaration in the supporting document checklist is being updated to ask you to confirm that there are no signs of financial abuse,” BOQ told brokers in an update.

Call for caution

However, the FBAA has said that while the association supports “moves to prevent people being coerced into a loan”, any new requirement that asks brokers to sign a declaration stating they are unaware of borrowers suffering financial abuse should be spurned.

FBAA managing director Peter White commented: “My initial information is that PI insurance could increase tenfold to cover a declaration like this. There are so many issues that have not been considered, and banks must put this aside until these have all been addressed.”

He also said that emotional abuse of any kind is a complex subject, and being able to recognise it when discussing a mortgage places too much pressure on brokers.

“It’s absurd to even suggest that finance and mortgage brokers can do a two-hour or two-day course and suddenly be able to analyse people to the point where they can declare there is no financial abuse taking place,” Mr White said.

“The banks are attempting to bring a simple solution to what is a serious and complex issue, and I have to question whether this is more about protecting themselves than the public.”

A spokesperson for ANZ told The Adviser that they believed the broking industry would be best placed to work out the detail of the training required.

“We understand the motivation to do more in relation to vulnerable customers and support the move to provide greater training for brokers," the spokesperson told The Adviser.

“However, we believe the industry is best placed to work through the detail of who should provide that training and how it should be used.

“Based on industry feedback, we will consider any changes we may need to make to our own processes and training in the future.”

It is expected that further meetings will take place between the broker and banking associations over the coming weeks to clarify the requirements for brokers in identifying financial abuse.

[Related: NAB updates lending policy to comply with new banking code]