Banking - Introduction

Contributed by MariosFitirikkos, as amended by AFCA and current to March 2025

Dealing with a bank is, in many respects, similar to dealing with any other business. A bank offers services, which a customer may choose to use, agreeing to pay for them, either directly or indirectly.

This chapter is intended to provide an overview of some of the characteristics of banks and their legal relationship with their customers, a summary of the regulatory framework within which they operate, and an outline of some of the legal issues that arise for consideration by lawyers advising banks or their customers.

Banking law is not a discrete area of law like contract or torts. It conveniently describes, however, the collection of legal principles which impact on banking transactions and on the banker-customer relationship. In that sense, the activity of banking is the location at which a diverse range of legal principles intersect which we call banking law.

Those legal principles are drawn from a range of sources, including common law, equity and statute. In addition, for banks that subscribe to it, the Banking Code of Practice is a legally enforceable set of principles and rules incorporated into the contract between the bank and its customers.

Relevant legislation includes: Banking Act 1959 (Cth) (Banking Act); Reserve Bank Act 1959 (Cth); Australian Prudential Regulation Authority Act 1988 (Cth); Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), which contains in Division 2 of Part 2 the unconscionable conduct and consumer protection provisions in relation to financial services providers that are no longer in the Trade Practices Act; Corporations Act 2001 (Cth) (Corporations Act), in particular Part 7; Privacy Act 1988 (Cth) (Privacy Act), in particular the credit reporting provisions in Part IIIA; National Consumer Credit Protection Act 2009 (Cth) (NCCPA), which contains in Schedule 1 the National Credit Code (NCC); Cheques Act 1986 (Cth); various state fair trading acts, for example, Consumer Affairs and Fair Trading Act (NT).

The nature of bank products raises some specific issues, so the law has provided a number of special rules for bank-consumer transactions.

The consumer is likely to deal with a bank in one or more of the following ways:

• as a borrower (ie a person with a home loan or credit card)
• as a depositor (ie a person with a savings account or a term deposit)
• as a user of one of a number of payment systems operated by the bank (ie a cheque account, or credit card electronic periodic payments).

Since 1 July 2010, borrowers in the NT have been covered by the National Consumer Credit Protection Act 2009 (Cth) (NCCPA). The credit aspects of banking are covered in Buying on credit. This chapter covers the law relating to general banking issues, deposit accounts and payment systems.

Authorised deposit-taking institutions

Banks are not the only financial institutions that provide banking services. For instance, credit unions and building societies provide similar services, such as cheque facilities, deposits, loans and insurance services. These entities are referred to as an 'authorised deposit-taking institution' (ADI). Under section 5 of the Banking Act, an ADI is a body corporate authorised by the Australian Prudential Regulation Authority (APRA) under section 9 of the Banking Act to carry on the business of banking. Section 5(1) of the Banking Act defines 'banking business'.

ADIs now include banks, credit unions, building societies, specialist credit card institutions (such as MasterCard and VISA), PayPal and others - a full list is available on APRA's website at Register of authorised deposit-taking institutions | APRA.

The use of the names 'bank', 'banker' and 'banking' by an ADI is subject to control under section 66 of the Banking Act and the consent of APRA is required to use them.

As a result, what consumers would readily identify as a bank is now, in legislative terms, an ADI which has the consent of APRA under section 66 of the Banking Act to call itself a bank.

In summary, ADIs are supervised and regulated by APRA and ASIC.

The regulatory framework

There are three main regulatory agencies for the financial system in Australia and their responsibilities are:

• Reserve Bank of Australia: monetary and banking policy and the stability of the Australian economy. The Reserve Bank includes within its structure the Payments System Board, which is responsible for payments system policy.
• Australian Prudential Regulation Authority: prudential regulation of a range of financial institutions including banks, credit unions, insurance companies and superannuation funds. The aim of prudential regulation is to ensure sound practices and financial stability.
• Australian Securities and Investments Commission (ASIC): consumer protection and market integrity. The ASIC Act gives power to ASIC to facilitate and improve the services of financial institutions. ASIC's functions also require it to promote the confident and informed participation of consumers and investors in the financial system. ASIC has responsibility for monitoring and reviewing financial industry codes of practice such as the ePayments Code. ASIC also has responsibility for enforcing company law and licensing and conduct of corporations.

In addition the Australian Competition and Consumer Commission (ACCC) has an economy-wide role to protect competition. The responsibility for consumer protection in the financial services sector, however, lies with ASIC.

Regulation of financial services and markets: ASIC's role

Consumer protection

The role, powers and responsibilities of ASIC are set out in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). They include the power to regulate unconscionable conduct and consumer protection in the financial services industry [Pt.2 Div.2].

It is important to be aware that the consumer protection provisions contained in Part IVA and Part V of the Trade Practices Act 1974 (Cth) (TPA) no longer apply to financial services.

This means that when considering bringing claims for misleading or deceptive conduct or unconscionable conduct, you will need to refer to and plead the relevant provisions of the ASIC Act. For example, the prohibition against misleading or deceptive conduct by a financial services provider is in section 12DA of the ASIC Act, not section 52 of the TPA.

Licensing and disclosure

Chapter 7 of the Corporations Act was introduced via the Financial Services Reform Act 2001 (Cth). It contains the licensing, disclosure and other conduct requirements for the financial services industry, including banks.

For example, Chapter 7 requires people who provide financial services to obtain an Australian financial services licence (AFS licence) or become the representative of a licensee. A person provides financial services if they carry out certain activities, such as advising or dealing, in relation to financial products. Therefore, in addition to holding an APRA licence, banking institutions must also hold an AFS licence, which is issued by ASIC.

Under the licensing requirements, a licensee must be a member of an approved dispute resolution scheme. ASIC is required to approve industry dispute schemes that comply with certain standards. This should lead to a more consistent approach across the industry to resolving disputes. Chapter 7 requires licensees to provide internal and external dispute resolution mechanisms to customers [Corporations Act s.912A], including the requirement that a licensed financial services provider be a member of an ASIC-approved dispute resolution scheme.

Chapter 7 is the source of the obligation, for example, to 'do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly' [Corporations Act s.912(1)(a)].

Finally, the Corporations Act imposes disclosure obligations on banking and other institutions for financial products, which are designed to help consumers make a fully informed choice about their need for a particular financial product. Under these disclosure obligations a financial product supplier is required to provide a product disclosure statement (PDS) to a retail client before they acquire a financial product. The PDS sets out the features of a financial product, including its risks, benefits and costs. Therefore before a bank account can be opened, the law requires a bank to provide the consumer with a PDS setting out the features of the account. ASIC has put together a series of regulatory guides for financial services providers on how to prepare PDS documents. These can be downloaded from the ASIC website at http://www.asic.gov.au/or obtained from the nearest ASIC office (see Contact points).

Banking standards and disputes

The first step in solving a dispute with a bank depends on the type of complaint. In many instances a customer's complaint is dealt with by specific legislation such as the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) (see Buying on credit).In general, it is helpful to keep in mind the following avenues if a customer's complaint is in relation to a consumer banking service:

• Internal dispute resolution mechanisms: banks have a process whereby customers' complaints can be heard by senior officers within the bank. Under the Banking Code of Practice, all banks must have this process available for disputes with individual customers.
• An external dispute resolution service such as the Australian Financial Complaints Authority (AFCA): as described below, AFCA provides a free service, and is able to hear complaints after the customer and bank have attempted to resolve the dispute between them. It is also able to hear complaints about other financial products and services and can provide information to consumers about the appropriate body to handle specific complaints.
• ASIC: ASIC is the consumer protection regulator for financial services and products. It generally investigates systemic consumer protection issues.
• The court system: if a customer has a legal right (resulting for example from a breach of contract by the bank) they may seek to have it enforced in a court. Customers may also pursue a dispute in court if they have complained to AFCA and do not accept AFCA’s decision.

External dispute resolution services

Most financial institutions have internal complaint-handling procedures; however, where the financial institution does not deal with the account holder's complaint satisfactorily or a resolution cannot be reached, the account holder may refer their complaint to AFCA.

A dispute resolution framework is mandated in section 912A of the Corporations Act and the relevant regulation in the Corporations Regulations 2001 (Cth), reg.7.6.02. Clauses 195-199 of the Banking Code of Practice mirror this requirement. Therefore, even if a bank or other financial services provider has not adopted the Code, it will still have similar dispute resolution obligations to those set out in the Code.

Lawyers need to familarise themselves with the available external dispute resolution schemes to ensure that they are able to advise their clients about any appropriate scheme in jurisdictional terms and to know when a court or tribunal will be the more appropriate forum. Currently the ASIC-approved external dispute resolution scheme that operates in the Australian financial and credit industry is the Australian Financial Complaints Authority (AFCA)

Banking Code of Practice

On 28 February 2025, the Australian Banking Association (ABA) released its latest version of the Banking Code of Practice (BCOP). Each version of the BCOP has a transition date from which it applies.

The BCOP’s transitional period rules provide that each version of the BCOP will apply to banking services for which the customer enters into an agreement with the bank on or after the transition date. If there is a matter that is not specifically dealt with in the terms and conditions of the agreement, then the relevant version of the BCOP will apply to the matter if it occurred on or after the transition date.

The BCOP outlines a number of minimum standards that a bank needs to adhere to when dealing with customers, including the information that it is required to give customers and how complaints are to be handled. Each bank/consumer contract entered into since the commencement of banking codes of practice includes a term stating that the relevant provisions of the BCOP are included in the terms and conditions of that contract. The BCOP is, therefore, contractually binding on a bank.

The BCOP only applies to the banks which adopt it; however, most of the major banks in Australia have adopted the BCOP.

The BCOP sets out the requirements for a bank when dealing with a customer, including:

• how to communicate with customers
• providing inclusive and accessible banking services
• taking extra care with customers who are experiencing vulnerability
• banking services for people with low or no income
• lending to customers
• rights for guarantors, farmers, and deceased estates
• banking services for joint accounts, direct debit and recurring payments, credit and debit cards, and consumer credit insurance

assisting customers experiencing financial difficulty.The BCOP also provides that in the event of a dispute between bank and customer, the bank must have in place a fair and reasonable internal process for hearing a customer's complaint. Once a customer makes a complaint to the bank they are entitled to a written reply from the bank, explaining its position.

Should the customer not be satisfied with the outcome of the internal process, the bank must have in place an external and impartial person to adjudicate the dispute. The Australian Financial Complaints Authority is the body that determines such disputes.

Unlike the NCCPA, the BCOP applies to small business customers as well as individuals. It gives customers of adopting banks an important set of rights in relation to matters including disclosure, conduct, provision of documents, contractual enforceability of statutory obligations, debt collection, and dispute resolution.

There are other codes of practice in the banking and finance industry to be aware of which cover the conduct of other subscribing lenders, including:

• the Customer Owned Banking Association’s (COBA) Customer Owned Banking Code of Practice
• the Australian Finance Industry Association’s (AFIA) Online Small Business Lenders Code of Practice
• AFIA’s Buy Now Pay Later Code of Practice
• AFIA’s proposed Finance Industry Code of Practice (yet to be released).

Banking issues that could be referred to external dispute resolution

Legal issues that arise between consumers and banking institutions that the external dispute resolution services could deal with may include:

• breach of contract, including the contractual duty to provide services with care and skill
• misleading or deceptive conduct
• unconscionable conduct
• breach of the NCCPA or NCC, including provisions relating to lending and financial hardship
• breach of the Banking Code of Practice or other codes of practice
• unauthorised transactions
• scams
• breach of the Privacy Act, including the Australian Privacy Principles, or the bankers' duty of confidentiality.

The subject matter of disputes can include:

• unauthorised withdrawals from bank accounts by a third party or by error of the bank
• whether the bank undertook a reasonable assessment of a customer's ability to repay a loan or other facility before making the decision to lend
• whether the bank identified and responded appropriately to a hardship notice given by a customer
• whether the bank took extra care when dealing with a customer experiencing vulnerability
• representations made to customers about a product or service
• the price obtained for a property on sale by the bank as mortgagee
• other action taken in enforcement of a debt
• errors in the calculation of repayments required on a loan
• non-disclosure of material information in the taking of a guarantee.

Australian Financial Complaints Authority

Overview

The Australian Financial Complaints Authority (AFCA) brings together separate, former external dispute resolution schemes: the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT). AFCA is an independent dispute resolution service for majority of Australian banking and finance, general insurance, investments and financial advice, and superannuation disputes.

AFCA is not a regulator or a government agency. External dispute resolution services provide independent, free, fair and accessible dispute resolution for consumers who are unable to resolve a dispute directly with a financial firm. External dispute resolution services allow consumers to have complaints that would not normally be brought before a court, due to the cost of legal proceedings, considered and resolved.

AFCA is approved by ASIC as an external dispute resolution scheme for financial services licensees under Part 7 of the Corporations Act. Membership of an approved scheme is a licence requirement.

An important part of AFCA's role as an external dispute resolution scheme is identifying, reporting and addressing systemic issues - issues which affect many customers. AFCA reports to ASIC on systemic issues identified in its dispute resolution work.

For further information about AFCA visit its website at Home | Australian Financial Complaints Authority (AFCA) or call 1800 931 678. AFCA's website provides regular information including the number and types of cases received by AFCA and how cases are resolved. These statistics are also published in the AFCA Annual Report.

Banking complaints AFCA can help with

AFCA can help customers resolve complaints against banks. It is a free service to individuals and small businesses and operates Australia-wide. AFCA may be able to provide remedies when a financial firm has acted unfairly, by:

• breaking a law
• breaching a relevant code of practice
• not meeting standards of good practice in the relevant industry sector.

Depending on when the complaint is lodged, there are limits that apply to compensation amounts per claim and monetary restrictions on AFCA’s jurisdiction per claim. To see the limits that apply, you can access the relevant version of AFCA’s Complaint Resolution Scheme Rules (the Rules) at AFCA Rules and Guidelines | Australian Financial Complaints Authority.

Banking complaints AFCA cannot help with

The Rules include time limits that apply for lodging a complaint with AFCA. There are some types of banking complaints that AFCA will not deal with and they are listed in detail in the Rules. They include complaints:

• about a business that is not a member of AFCA (at the time the complaint is lodged)
• about a decision by a financial firm as to how to allocate the benefit of a financial service between the competing claims of potential beneficiaries, unless the complaint relates to a superannuation complaint or a traditional trustee company service
• that raise the same events and facts brought by the same complainant as a complaint previously dealt with by AFCA or a predecessor scheme, and there is insufficient additional events and facts raised in the new complaint to warrant AFCA considering the new complaint
• that have already been dealt with by a court, dispute resolution tribunal established by legislation or a predecessor scheme, unless the complainant has requested a stay on the execution of a default judgment on the basis of financial difficulty, and the financial firm has declined the complainant’s financial difficulty assistance request, and the request has not previously been dealt with
• where the complainant is a member of a group of related bodies corporate and that group has 100 employees or more
• about a financial firm's assessment of the credit risk posed by a borrower or the security to be required for a loan (with exceptions in cases of maladministration or variation of a credit contract resulting from financial hardship)
• about a small business (including primary producer) credit facility of more than $5 million (or higher amount that applies as a result of an adjustment) and where the complaint is submitted by the borrower or a guarantor of the borrower’s debt.

AFCA also cannot deal with complaints about the level of a fee, premium, charge, rebate or interest rate unless certain limited circumstances apply. AFCA cannot help with a customer complaint that a fee charged was 'too high', but can deal with complaints where the customer claims:

• non-disclosure, misrepresentation or incorrect application of the fee, premium, charge, rebate or interest rate by the financial firm
• there is a breach of any legal obligation or duty on the part of the financial firmthere was poor service and they are claiming a refund of the fee.

AFCA also has discretion under the Rules at rule C.2 to exclude a complaint under certain circumstances if it considers it appropriate in cases where there are compelling reasons.

Member banks pay for the scheme, but it is directed by an independent Board made up of consumer and industry representatives.

Complaint process

Once a complaint is lodged, AFCA registers the complaint at its Registration and Referral stage and checks to see whether the complainant has already complained to the financial firm.

• If the complainant has not already complained to the financial firm, AFCA will refer the complaint directly to the financial firm. The financial firm then has 30 days from the date of referral to work directly with the complainant to reach a resolution. This is the internal dispute resolution (IDR) period. If the complaint does not resolve in the IDR period, AFCA will begin its Case Management. Complaints involving financial difficulty have a 21-day IDR period before AFCA begins its Case Management stage.
• If the complainant has already complained to the financial firm and the complaint has not resolved, AFCA will register the complaint and give the financial firm a further 21 days to resolve the complaint. If the complaint is not resolved within 21 days, AFCA begins its Case Management.
• AFCA continues to track registered complaints when they have been referred back to the financial firm for IDR.

At its Case Management stage, AFCA will investigate the complaint and facilitate an exchange of relevant information between the parties to try to reach an agreement. This will generally be via informal methods first such as written correspondence, negotiation or a telephone conciliation.

If the complaint does not resolve by negotiation or conciliation and AFCA has enough information, AFCA will then use more formal methods where it may provide a preliminary assessment about the merits of the complaint over the phone or in writing. If either party rejects AFCA’s preliminary assessment, the complaint is referred to an ombudsman, adjudicator or a panel for a decision (called a determination). If AFCA makes a determination that is in the complainant’s favour and the complainant accepts it, the financial firm is required to comply with the determination and any remedy that AFCA awards.

The complaint process runs more smoothly if details of the complaint are outlined clearly in writing, setting out:

• the steps already taken by the complainant to sort out the complaint
• what the customer thinks the bank has done wrong
• the loss the customer has suffered.