The New Zealand Bankers' Association (NZBA) has recently released the third edition of its Code of Banking Practice. The revised Code, which came into force on December 2 2002, does not make substantial changes to the second edition of the Code. It incorporates most of the material from a Statement of Principles issued by the Bankers' Association in 1999 and, unlike with previous editions, applies equally to business customers. The Code includes new sections about the provision of credit and merchant card services. It has also been reorganized and contains more explanation of each section, possibly at the expense of its accessibility to the public.
The Code sets out the minimum standards of good banking practice to be observed by the members of the Bankers' Association, a voluntary organization made up of New Zealand's leading banks. The original Code was issued in 1992 in an effort to promote good banking practice and communication between banks and their customers. It applies only to banks that are members of the Bankers' Association and is not legally enforceable unless expressly incorporated into a contract between the bank and the customer. However, courts have taken the principles of the Code into account as evidence of acceptable banking practice in New Zealand.
The inception of the Code coincided with the setting up of the Office of the Banking Ombudsman by the Bankers' Association. The Banking Ombudsman Scheme provides an impartial redress mechanism for customers unable to resolve a dispute directly with their bank. All members of the Bankers' Association subscribe to the Banking Ombudsman Scheme and the procedure for making a complaint with the Banking Ombudsman is set out in the Code. Under the Code, Bankers' Association members must first attempt to deal with a customer's complaint internally before referring it to the Banking Ombudsman.
The Code originally applied only to personal customers, as did the second edition of the Code, issued in 1996. In June 1999, the Bankers' Association issued a Statement of Principles, which extended the scope of the Code to cover banks' relationships with smaller business customers. The latest edition of the Code incorporates most of the principles in the 1999 Statement of Principles and applies to all bank customers - both personal and business.
The new Code includes an expanded section about the provision of credit to customers. In particular, the new Code sets out the principles to be applied by a bank should a customer be in financial difficulty or default. Member banks agree to communicate with customers if they have concerns about the customer's business or ability to repay credit. If the customer acts in good faith, keeps the bank informed, complies with agreements with the bank and is prepared to make changes suggested by the bank, the bank agrees that it will not normally initiate recovery proceedings immediately.
These credit principles are largely taken from the 1999 Statement of Principles, which was published at a time when banks were being criticized for taking enforcement proceedings prematurely or unreasonably. Although the credit provision principles seem beneficial to customers, the banks retain a degree of flexibility. However, any enforcement action is subject to the bank's general duty to act fairly and reasonably towards customers (a concept retained from the second edition of the Code). It remains to be seen whether the inclusion of the credit principles in the Code will have any significant impact on dealings between banks and customers in financial difficulty.
A new section concerning merchant card services (eftpos and credit cards) is included in the third edition of the Code. The banks agree to inform merchants of the risks of accepting card transactions, to obtain a merchant's consent before changing the bank providing the card services and to provide a robust, encrypted and efficient eftpos payment system. Merchants are not party to the Code and enter into separate agreements with the banks providing the card services. The terms and conditions in these agreements apply in addition to the standards in this section of the Code.
The third edition of the Code is much longer than the second edition, largely because of longer explanations of the principles in the Code rather than the introduction of new sections. The information has also been organized under fewer section headings. As a result, information in the third edition of the Code may be less accessible to bank customers. The success of the Code and the Banking Ombudsman Scheme relies on their promotion and availability to the public. In a recent survey of bank branches only 12% had a copy of the Code on display. However, the Bankers' Association and several of the member banks have recently included a link to a copy of the Code on their websites - a move that has been commended by the New Zealand Ministry of Consumer Affairs. As yet, the Code does not require member banks to advertise its existence.
The Banking Ombudsman will monitor the third edition of the Code through complaint investigations and it will be reviewed in the Ombudsman's annual report. A formal review of the Code by member banks will take place within the next three years. There may also be an interim review if required by changes to banking practices, technology and legislation.
James Aitken and Hannah McKechnie