Australia: Code of Banking Practice: The Khoury Report

Phil Khoury's Independent Review of the Code of Banking Practice (Khoury Report) was released by the ABA last month and contains 99 recommendations designed to align the code with current community expectations of fair, predictable and trustworthy banking practices. If implemented, the recommendations will require code signatories having to meet a much higher standard than under the current code.


One of the main criticisms of the current Code is that it duplicates existing legal obligations, rather than adding any further benefits or clarity for the banks' customers. This is what Mr Khoury is seeking to redress. The report proposes that the new Code be based on eight principles:

  1. Focus on the Customer
  2. Fair and reasonable
  3. Speaking clearly and plainly
  4. Transparency with customers and community
  5. Responsible in lending
  6. Support for financial inclusion and special needs
  7. Assistance with financial difficulty
  8. Open and fair treatment of complaints

In preparing his report, Mr Khoury considered those matters raised by the Australian Small Business and Family Enterprise Ombudsman in the Inquiry into small business loans last December (Carnell Report) and adopted some of the recommendations contained in the report. Similarly, Mr Khoury also considered the more modern Customer Owned Banking Code of Practice and recent government inquiries. Similar reforms in the USA and UK were taken into account, as were ABA practice guidelines and the ABA's Better Banking initiative. As a result, the outcomes of the Khoury Report align with international and local banking reform that's already underway. It would therefore be extraordinary for the signatory banks not to voluntarily implement most, if not all, of the recommendations contained in the Khoury Report.

Of course, it's impossible in an article of this length to explore all 99 recommendations. Instead, we'll focus on just two areas of reform which may have a significant impact on the signatory bank's legal obligations – Small Business and Credit Card Lending.


Similar protections as those provided to consumers by the National Credit Code are to be extended to credit facilities provided to small business. For this purpose, small business is defined as a business that employs fewer than 100 full-time equivalents in respect of credit facilities up to $5 million. This definition does not extend to financial products and service regulated by the Corporations Act (i.e. those provided in accordance with the bank's Australian Financial Services Licence).

The small business credit protections will require signatory banks to provide to small business loan applicants/borrowers:

  1. a clear explanation of the bank's requirements needed to obtain bank credit, the time it will take and, when declined, the reason for that decline and what would be required for the bank to reconsider1;
  2. a pre-contractual statement setting out the basic loan information including the credit period, repayment obligations, interest rate, fees and charges, events of default and details of how and when a bank can unilaterally vary the terms of the credit contract;2
  3. 30 days' notice of any materially adverse unilateral change to a credit contract with the only exception being if the small business is in default under the terms of the credit contract;3
  4. 90 days' notice of the bank's intention to not roll over a loan that is maturing where the customer is not in default;4
  5. details of the financial assistance that banks will provide to small businesses in financial difficulty, similar to the UK's The Lending Code which will include relevant protections that apply to consumer credit, including restrictions on instituting or continuing enforcement action;5 and
  6. 30 days' notice before beginning enforcement proceedings, unless more urgent action is necessary to preserve the value of the security or recover the debt.6


Specific reforms to the code in respect of credit card lending are confined to consumer credit cards. These reforms align to the proposed Phase 1 amendments to the NCC by Treasury that arose out of the Treasury Consultation Paper "Credit cards, improving consumer outcomes and enhancing competition". If adopted the proposed changes include:

  1. requiring the bank in undertaking the NCC 'not unsuitable' assessment to include an assessment of the consumer's capacity to repay the full card limit in a reasonable time period7;
  2. a prohibition on providing a consumer with a credit card limit higher than the amount applied for by the consumer8;
  3. banning a bank from offering credit card limit increases unless initiated by the customer. Use of 'opt in' consent forms to receive credit limit increase information will not amount to a customer initiated request9;
  4. a prohibition on charging interest on any part of a balance that was paid off by the due date. Where interest is to be charged from the date of purchase if not paid in full by the due date, the statement must specify the amount of interest being waived if paid in full and that interest charges will be reinstated and added to future statements for any portion of the balance not paid by the due date10;
  5. an obligation to apply payments so that higher interest debts are discharged first11;
  6. the need to provide 30 days' notice of any introductory offer relating to low or no interest rates ceasing12;
  7. a requirement to equally promote a consumers ability to reduce a credit card limit whenever the consumer is provided with the functionality to increase a credit card limit13; and
  8. providing a notice and explanation to the consumer if a bank exercises its right to cancel a credit card14.

These reforms are likely to have significant system impacts for banks. The additional approval, marketing restrictions and notification requirements will require bank processes to be reviewed and amended. So far we have only explored 14 of the 99 recommendations.

Examples of other areas of reform include:

  1. enforcement action (including banning non-monetary default action unless insolvent or unlawful activity, provision of expert reports to borrowers, notification of adverse credit reporting);
  2. additional protections for joint account holders and guarantors (such as taking action against the debtor's security first before taking action against the guarantor);
  3. creating basic banking accounts for low income/special needs customers (including a positive obligation to identify clients who may benefit from such accounts and bringing them to the person's attention); and
  4. banning high pressure sales techniques, (in particular consumer credit insurance is only to be sold if it is suited to the customer, after a 24 hour cooling off period and banning any follow up contact not initiated by the consumer).


The Khoury Report is a comprehensive reform package that seeks to align the code with the government's own banking reform agenda. Banks will need to carefully consider the full impact of each recommendation. Some of these reforms have been rejected in past reviews of the code. Given the current calls for a Royal Commission, the banks will need to be mindful that rejecting any of the recommendations will provide further ammunition for those supporting such a measure.

While Mr Khoury generally praised and in some cases adopted the Mutual Banking Code of Practice, the mutual sector will need to review their own code to ensure it meets the standards that flow from the Khoury report and at least match the standards to which the non-mutual banks agree to adopt.


1 Recommendation 6

2 Recommendation 7

3 Recommendation 8

4 Recommendation 9

5 Recommendation 10

6 Recommendation 11

7 Recommendation 20

8 Recommendation 21

9 Recommendation 22

10 Recommendation 23

11 Recommendation 24

12 Recommendation 25

13 Recommendation 26

14 Recommendation 27

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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