Banks aren't exactly known as the good guys, so it might surprise you to hear that they have a voluntary Code of Banking Practice - a sort of ethical agreement aimed at keeping them honest. Almost all the major Australian banks subscribe to the code, but many aren't exactly sticking to it.
Like we said, it's voluntary!
The Code includes provisions on:
- disclosure of fees and charges and other terms and conditions
- changes to terms and conditions and fees and charges
- disclosure of general information about banking services
- privacy and confidentiality
- statements of account
- copies of documents
- direct debits
- chargebacks on credit cards
- financial hardship
- debt collection
- complaints handling
CHOICE shadow shop
CHOICE conducted a shadow shop to see which banks are sticking to the agreement when it comes to direct debits. We found that three-quarters of the 16 banks surveyed had trouble processing a direct debit cancellation at our shadow shopper's request.
- Three banks told our shadow shop callers they couldn't help.
- Five gave at least one response that wasn't best practice.
- Four charged a $10-15 fee (while charging a fee is not strictly breaking the code, it will discourage consumers to make use of the code's provision).
- Only four banks fully followed the code when talking to our two callers.
Winners and losers
|Bank of Melbourne
|| One caller was told to go to the retailer first and only come back to the bank if they have problems. The other call passed.
||One caller was told that if the retailer used a different payment number they can get around the cancellation request. The Financial Services Ombudsman told banks back in 2001 they had to deal with this issue. The other call passed.
|| One caller was told NAB would send a request to the retailer to cancel the direct debit, but if the retailer had a reason that NAB deemed valid it wouldn't be cancelled. The other call passed.
|| One caller was told there was no guarantee the direct debit would be cancelled and processing it would take 15 business days. The other caller was told to go to the retailer first and only come back to the bank if they had problems.
|| Both callers were told the direct debit would be blocked for three years but if the retailer attempted to take the direct debit after that it would no longer be blocked. One caller was also told that if the retailer uses a different payment number, they could get around it.
Revised code – who's in?
A revised Code of Banking Practice, which aims to further strengthen consumer protections, came into effect on 1 February 2014. But our shadow shop conducted shortly before the introduction of the new code shows it's doubtful it will be as effective as it could be. And not all banks have signed up to it.
- Bank of China, Macquarie and Arab Bank are only signatories to the very basic 1993 code.
- ME Bank has not signed the new code or the Mutual Banking Code.
What CHOICE wants
Here's what we'd like to see from service providers when it comes to direct debit:
- Create better solutions for paying bills automatically that don't require consumers to sign away permission to debit their account.
- Remove all dishonour fees.
- Make sure consumers can easily cancel direct debits, without fees, from everyday bank accounts and credit cards.
Time to act
As well as our own investigation, the Code Compliance Monitoring Committee (CCMC) - which shares an office with the Financial Ombudsman Service - also conducted shadow shops of all the banks that subscribed to the code, enquiring about the cancellation of a direct debit.
- In 2008, only 29% of banks complied with the code.
- In 2010 and 2011, that number had risen to only 33%.
CCMC advised the banks to provide training and information to staff. An official Australian Bankers' Association (ABA) review of the 2004 Code of Banking Practice also suggested that staff be trained in this area. Unfortunately these recommendations weren't included in the new code released in 2014, which cited a general training requirement already included in the original agreement.
But ABA CEO Stephen Münchenberg concedes more work needs to be done. "Bank staff need more information about the processes involved to cancel a direct debit," he says, adding that the ABA is developing information for both consumers and bank staff.
In CHOICE's view, the bank industry's inability to address breaches of a code that's been in place for almost 10 years indicates that self-regulation isn't working.
So, how do I cancel a direct debit?
For more information on managing direct debit, avoiding scams and cancelling automatic payments, see our guide to direct debit.