Does the Australian Financial Law Favor Consumers or the Bank - Case Study Example

Does the Australian Financial Law favor consumers or the bank? The financial law in Australia has undergone numerous changes. The major reforms have been with the intention of achieving an efficient market system for both the bank and the customers. Most of the reforms have been targeted towards the resolution of disputes throughout of Court mechanisms, licensing of financial service providers and having a regulatory arrangement to offer directions in financial regulations. The disclosure principle favors financial service providers. Just like in insurance, the law prescribes that all information in disclosing in financial cases (Australian Bankers Association, 2013). Further, in Australia customers are under the protection of the Australian Competition and Consumer Commission. Banks and financial service providers must be licensed for them to provide these services. In addition, the bank is required to be a member of an external dispute settlement structure, ratified by the Australian Securities and Investments Commission (AISIC). As reported by (Ferguson, West 2010) in the Sydney Morning Herald, in the year 2010, banks faced a class of action for the offence of overcharging their customers. Banks have been accused of exploiting their clients from time to time. This paper outlines the arguments on how the financial law is biased towards both the bank and the customer with specific references being made in matters of responsible lending, security interest banker's lien, cheques, bills of exchange, consumer guarantees as well as Codes and Acts including the National Consumer Credit Act, Bill of Exchange Act, Personal Property and Securities Act, and the Banking Code of Practice just to mention a few. Banking Code of Practice The Code of Banking Practice determines the banking standards. The code further gives the duties the bankers have towards customers’ disclosure and principles of conduct of the banking services. The Code is applicable to both personal and small bank clients. Though not law, most banks have voluntarily adopted this code of practice. Section 3 of the Code stipulates the bankers’ obligations towards the regulars. Financial service providers are also required to explain to the client the contents of brochures and services offered (Australian Bankers Association, 2013). Some of the duties bankers have towards their clients include, privacy and confidentiality, handling of complaints, unsealing debts, change of terms and fees charged, and the issue of statements of accounts among others (Pearson, 2012). The financial providers are required to provide better information about the services they offer. The Code recognizes the presence of clients with individual needs, such as older persons, pregnant women, who are to be assisted to access the service (Ferguson & West, 2010). In case of breach of any of the duties prescribed in the code of practice, a client is required first to raise the issue with the respective bank. When the complaint is not handled to the client’s satisfaction the client can upgrade the matter with the Financial Ombudsman Service. Section 37 of the Banking Code of Practice provides that banks are required to have an internal dispute resolution mechanism (Omarova, 2012). The conduct standards have favored banks in terms of winning their customers' trust. Banks and financial providers are expected to conduct themselves in the manner that reflects their economic productivity. They are therefore expected to provide all information during registration of the different firms. Under the National Consumer Credit Protection Act of 2009, a customer can request for copies of documents they have rights to. Therefore, the client can ask for a copy of any mortgage or other security documents; a contract for the terms and conditions, standard fees, charges and interest rates on various services offered (Australian Bankers Association, 2013). In addition, the customer at any time may request for a statement of accounts. The General descriptive information concerning the banking services shall also be provided to the customer. For instance a customer will be informed of the account opening procedures and requirements. Consequently, a customer will be advised of the way complaints are handled by the respective finance provider, bank checks, requirements of confidentiality of customers' bank information, this is provided for under Section 15 of the Code of Practice. With regards to the cheque that require the inter-bank transfer services, the fee had to be disclosed by the bank at the time the service is provided or upon customer's request in accordance with section 17 of the Code. Responsible lending Responsible lending is encouraged so as to encourage prudent lending and to sanction irresponsible lending. Credit and debts are key issues in the banking industry. Easy access to credit helps consumers absorb the cost of expensive items over time or to manage emergency situations (Meade, 2012). Banks on the other hand, require that consumer debts be repaid on time for them to meet their responsibilities in good time. This has called for the enactment of regulations that manage lending in the financial industry. Both the consumer and the credit provider have responsibilities towards credit and debts. The National Consumer Credit Act establishes responsible lending obligations under section 152. The obligations are in favor of the customer. The bank and the credit licensees are required to take three steps when providing credit assistance of the consumer. First, is to make reasonable inquiries about the customers’ needs’ and objectives. Make inquiries about customers situation as under section 154 and lastly to take treasonable steps to verify the customer's financial situation as under section 155. Further, the Act goes on to provide situations that could make a credit contract unsuitable, they include if the requirements are not met, the consumer has the capability of not repaying the creditor can only meet it it substantial hardships. Financial hardship as defined under the Act could include selling of the place of residence of the consumer so as to meet the credit repayments. A customer is allowed access to the credit segment upon request as under section 160. In the event a debtor defaults the bank needs to fulfill certain requirements before repossessing the debtors personal property. The NCCP adds hat he creditor does not owe the debt a duty of care under the repossession process. Repossession as to be legal such creditor may be liable for the tort of conversion. The creditor requires consent of the debtor or a court order to enter the debtor's premises and repossess the property (Hubbard, 2013). Bills of exchange and Bankers cheques. A bill of exchange is defined under section 8 of the bills of exchange act as an absolute command made in writing directed by an individual to another individual. The order is usually signed by the person giving it and usually requires the person addressed to pay certain sums of money on requesting a fixed time in future Capacity partys’ to a bill of exchange are defined under section 26 of the Act. A party is only responsible to the obligations of a bill if it party to the bill. Therefore a person is only liable as an endorser, drawer, drawee and payee if they have signed the bill. As under section 29 for forged or unauthorized signatures, renders the bill inoperative. Bankers are favored by the Act under section 65, in situations where the bank pays the bills in good faith when the bill has been forged. In such an instance, it is assumed that the banker made the payment in due course (Bill of Exchange Act, 2001). A cheque is a bill of exchange drawn on a banker and payable on demand. The rights of a banker are provided for under the section 80 of the Bill of Exchange Act. Under the (Bill of Exchange Act, 2001), a banker has the right to refuse the payment of a stale cheque. Banker authority to repay a cheque drawn by a customer is determined by notice of his customer's death, and the countermand payment. Bankers who pay to cross cheques in good faith and without negligence are exempted from liability as provided under section 86 of the Act. Security Interests and Bankers Lien. The lien is the right of a creditor to hold goods of a debtor until the credit is repaid. The lien general rule under the personal Property Securities Act, section 60,a perfected security interest takes precedent over the unperfected security interests. Conversely, it is not the case under the common law, under section 93 of the Personal Property Act priority regime has power over all other security interests if the goods or services provided that gave rise to the alien were provided under the ordinary course of business, the holder of the lien was not aware of the security agreement prohibiting the lien creation, and no act prevents the line from having priority (Woods and Smith, 2011). When a bank agrees to provide financial accommodation to a customer, the finance and associated security documents which govern their relationship generally represent a negotiated. A position to which the parties have agreed to follow some degree of discussion and, at least in the Case of more substantial corporate customers, some degree of bargaining. A bank is entitled in these circumstances to negotiate an agreement which best represents its interests. Many of the provisions contained in the documents are intended to serve this purpose, so that, if it subsequently appears that the customer is no longer able to uphold its end of the bargain, the bank has some means of protecting its position. Conclusion. There exist laws that favor both the clients and financial institutions. The principal aim of the laws favoring client’s such as the Consumer Protection Code is to avoid incidences of client exploitation. It is the work of the Federal government to protect clients from potential abuses by banks. In addition, the laws favor clients to ensure that the services offered to them is of the required and needed standards. Thirdly, clients have the option of seeking redress from this are financial intuitions through the use of the internal dispute resolution mechanism. Further, the clients are allowed to appeal to the Ombudsman officer of service if they are not satisfied with the court. A client is also authorized to obtain all the financial information from a banker before entering into a loan agreement. Such a client if ignorant of the terms and conditions of the credit agreement should be explained in the simplest language. As provided under the doctrine of disclosure. On the other hand, the financial law protects banks from financial losses. First, banks are required to be registered to provide their services. Registration guarantees that a bank will have a client’s trust and confidence. In addition, banks are also protected from shame and public ridicule through the provision for internal dispute resolution. Most of the issues and complaints of clients can be solved amicably and the client compensated for damages caused away from prying media eyes. Banks are prevented from making losses through the principle of disclosure. Clients are required to disclose all information when seeking the services of a financial provider. Consequently, on the application of a loan from a client the bank has the discretion to deny such a client the loan if the bank is satisfied that the client lacks the ability of repayment References Australian Bankers Association, 2013. The Code of Banking Practice and the Code of Compliance of Monitoring Committee Mandate http://www.boq.com.au/uploadedFiles/Code_Of_Banking_Practice.pdf Attorney Generals Department, 2001. The Bills Of Exchange Act. Office of Legislative Drafting. Ferguson, A., & West, M., 2010. Fee gouging: Banks face huge class actions. The Sydney Morning Herald. Hubbard, Solli-Jami, 2013.Responsible Lending: An International Landscape. Consumers International. Meade, Elizabeth, 2012.Responsible Lending: Irresponsible Regulation of Consumer Credit in New Zealand? University of Otago. Woods, Rueben and Smith, Dale, 2011.Australia: Liensthe outlaws Personal Property Security. Mondaq. Omarova, S.T., 2012. Bankers, Bureaucrats, and Guardians: Toward Tripartism in Financial Services Regulation. Journal of Corporation Law, 37 (3), pp. 621-674. Pearson, G. 2010. Risk and the consumer in Australian Financial Services Reform. Sydney Law Review, The University of Sydney. Pearson, G., 2009. Financial Services Law and Compliance in Australia. Cambridge University Press, United Kingdom. Read More