How should your bank treat you?
OPINION: In 1992 two things happened that changed banking in New Zealand for good. In that year the Banking Ombudsman was established and the Code of Banking Practice was first published.
Unless you've had a problem with your bank, you might not think much of this.
So why are the Code and the Ombudsman still relevant 25 years on?
The Banking Ombudsman and the Code of Banking Practice go hand in hand. The Code sets out what banks will do for their customers as a minimum standard, and the Ombudsman provides a free and independent dispute resolution scheme in case things go wrong.
These two industry-led pillars of banking in New Zealand support public trust and confidence by helping ensure customers get a fair go from their banks.
The Code is now in its fifth edition. Over time it has come to duplicate bank terms and conditions. It also struggles to keep up to date with the new ways we're banking, and new consumer laws and regulations. A whole chapter on cheques in the current Code, for example, is no longer relevant to how most of us prefer to bank today.
That's why, on its 25th anniversary, the Bankers' Association is proposing a new principles-based approach to the Code.
The new draft Code is currently out for public consultation.
Customers should find the Code easier to understand and it will give the Banking Ombudsman more flexibility in determining what good banking practice is. It will also more easily keep up to date in the context of banking innovation, and fit better with changing consumer law and regulation.
The new Code states simply what customers can expect from their bank. It is high-level and sits above the detail of bank terms and conditions.
The draft Code clearly sets out five commitments that banks will make to their customers.
It says banks will treat their customers fairly, communicate with them clearly, respect their privacy, be responsible lenders, and deal effectively with their complaints.
These few words say a lot about what customers can expect from their bank.
The principles set out in the draft Code avoid the old rules-based approach. This means banks have to think carefully about how their conduct meets the commitments in the Code.
Following prescribed rules doesn't always result in the best customer outcomes. The principles-based approach we're proposing means banks will work even harder to get the right customer result.
It will also provide the Banking Ombudsman with more flexibility in determining what good banking practice is.
As well as looking at the principles set out in the Code, the Ombudsman will continue to take into account the relevant law, and bank terms and conditions.
She may also consult other banks and consumer groups to determine what good banking practice looks like in particular cases. That's important because customer expectations change and develop over time. This flexibility helps keep minimum standards in line with those expectations.
So while the new Code may be shorter and easier to read, in no way does it reduce what banks will do for their customers. In fact, it raises the bar.
The Banking Ombudsman's role in our banking landscape remains an essential part of the Code.
If you're not happy with the way your bank has responded to your complaint, the Code says you can take it to the Ombudsman to sort out. The service is independent of the banks, and free to customers.
While the Ombudsman is more likely these days to deal with complaints about mistaken online payments than problems with cheques, the point of the disputes resolution service remains the same as it was 25 years ago.
All the evidence suggests that the Ombudsman scheme has worked as its architects intended. New Zealand customer satisfaction rates for banks are high.
That's not just because banks are providing the kind of experience customers want. It's also because banks operate in a very competitive environment and work hard to keep their customers happy.
That includes putting right any problems quickly and fairly.
Customer trust and confidence in banks are essential to the industry's ongoing success.
For the last 25 years the Code of Banking Practice and the Banking Ombudsman have played a crucial role in improving customer outcomes by setting minimum industry standards and resolving customer issues. T
hey have both helped build trust and confidence.
Here's to another 25 years of better banking.
Note: NZBA welcomes submissions on the draft Code of Banking Practice until 26 July. Details on how to make a submission are available here.