A new banking industry code aims to stop banks charging dead people and ensure they only extract fees from customers in exchange for services actually provided.
The three main requirements of the Australian Banking Association’s updated code of practice are to end ‘fees for no service’, stop charging dead customers and to refund any fees incorrectly levied, and to support changes to the 2013 future of financial advice reforms to remove all legislative provisions allowing grandfathered payments and trail commissions.
The voluntary charter comes into force on July 1 next year and is the ABA’s response to the damning interim findings of the banking royal commission, released almost two weeks ago.
The big four banks have already said they have already said they will end grandfathered commissions on wealth products.
The ABA says banks will ask customers what financial advice they required and only charge for what is provided, stop or refund fees for products or services no longer required by customers who have died, and to support legislative changes to the FOFA reforms regarding provisions for grandfathered payments and trail commissions.
The Australian Securities and Investments Commission has already approved the code of practice.
“It has always been unacceptable for any organisations to charge fees without providing a service,” ABA chief executive Anna Bligh said in a statement on Tuesday.
“This announcement will put beyond the shadow of a doubt that this practice has no place in Australia’s banking industry.”
Ms Bligh said latest ASIC data indicates customers will receive more than $1 billion in refunds for fees charged for no service.
“This issue of charging fees without service, particularly when customers have recently died, was raised during the royal commission and identified as unacceptable,” Ms Bligh said.
“When someone loses a loved one, they need support and compassion as they finalise their loved one’s financial affairs.”
She said ending provisions for grandfathered commissions would help end conflicts of interest between customers’ best interests and incentives for advisers.