Eleven ways banks can level the playing field
Imagine playing a complicated board game where the opponent has written the rulebook and you haven't read it. That would reduce your chance of coming out on top quite significantly, wouldn't it?
That's how the game of retail banking is played.
Your opponent has written the rules, which are its terms and conditions and its service contracts, all of which are designed for its protection, not yours.
It has had a privileged position in developing the Code of Banking Practice, which further defines the rules of the game, and forces the banks to behave reasonably and ethically, without defining what that means, to use its "best endeavours" to do other things like provide safe internet banking, and to only lend to people it believes can pay the money back.
The fifth edition of the code has just come out.
It also contains a number of pledges which are promises to follow the law, such as not misleading customers in advertising, and to tell customers about the details of their products and services.
New Zealanders have come to understand law as being huge, complex and, bemusingly for a citizenry expected to abide by them, often beyond the understanding of all but a coterie of lawyers.
Such pseudo-law is on the increase in New Zealand, as is real law. When I searched to see how many acts of Parliament there were on legislation.govt.nz, I got 2140. Good luck abiding by all of those.
Of course, the Bankers Association hasn't had everything its own way. Pesky lawmakers and journalists push back when obvious injustices or excesses occur, though often the cure ends up looking worse than the disease, so nobody does anything.
But that pushback does mean the banks have responded and there are some genuine protections that go beyond the basics of the law.
Take, for instance, the protections around someone stealing your money through internet banking by hacking your home computer.
But even in such instances, there is a lack of clarity.
It is best to think of the code as pseudo-law and, in the pseudo-court of the Banking Ombudsman, where people can argue for compensation, it is key.
Take the passages covering the kinds of things that can mean you end up footing the bill for money stolen online.
What does "regularly" mean in the context of changing your internet password?
What are the "reasonable" steps you need to take to ensure your computer has up-to-date protective software?
What does the requirement to "act fairly and reasonably" towards customers "in a consistent and ethical way" mean when it is hedged with the following: "What may be fair and reasonable in any case will depend on the circumstances, including our conduct and yours."
Do you feel confident that you know what fair and reasonable mean in the context of the code? I don't.
I have spent the last couple of weeks wrestling with the code, but I'm paid to do so. If more than one in 100,000 New Zealanders reads it without being prompted by a bad experience with a bank, I would be amazed.
I have come to some conclusions about its weaknesses and strengths, and the changes I would make to it to give it more meaning and keep banks honest.
They are these:
- Revert to the dictionary definitions of fair and reasonable to govern bank behaviour.
- Change "best endeavours" to "will" for the safe banking systems pledge, as in Britain and Australia.
- Adopt the Australian code's "Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it." The New Zealand code's "We will only provide credit to you or increase your credit limit when the information available to us leads us to believe you will be able to meet the terms of the credit facility" is weaker.
- I like the Australian requirement for banks to tell low- income customers about the most suitable accounts and services for them. The same should go for the elderly.
- I would stop banks accepting unlimited guarantees from retail customers, adopt the Australian standards for information flow to the guarantor, and not allow "chains" of guarantees, or new credit facilities to be covered by the guarantee without the express permission of the guarantor.
- It's time each of the banks followed the now-abandoned British practice of having ATMs tell users the charge they are about to incur before they finalise a transaction. Also, I would have the banks provide internet banking customers with a split-out table of their banking charges and interest each month, so they don't sleepwalk their way through life paying fees.
- I would have them pledge always to inform the authorities (Serious Fraud Office, police, FMA) whenever they have reasonable cause to believe fraud or other law-breaking is taking place by or against customers.
- I would have the banks pledge that if a member bank, its systems or any of its staff have contributed significantly to a customer being defrauded or seriously misled, the bank will act with special care, sympathy and understanding. And in cases where the bank or staff member has played a facilitating part in such an abuse, the bank will assume joint responsibility for the loss.
- Banks should also provide customers with alerts when they become aware of ways in which their systems have been used in crimes so customers can understand better how to defend themselves. Also, I would require banks to report to the Bankers' Association once a year on examples of how they are interpreting the code so we get some pseudo case law to help understand what the pseudo law means in practice.
- That banks pledge to make good all mistakes, not only when asked, or pinged by an Ombudsman. Whenever I read an Ombudsman case resulting an a recommendation for compensation, I wonder how many more people have fallen foul over the same issue and never complained. I would be happy for the bank in question to issue an alert in cases where it could not reasonably work out all those who are affected and leave it to customers to identify themselves.
- Like the Brits and the Aussies, require time limits for complaints handling. I would also make it a requirement that banks release their findings, including their investigation files, to complainants.
- Sunday Star Times