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Australian Regulatory Compliance Review
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Credit Union and Mutual Law
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This story from BBC News shows the changes that UK credit unions are going through are much more dramatic than in Australia: only now are they being allowed to quote fixed deposit rates rather than wait till the end of a year when the deposit rate reflects the profits made.
The UK Financial Services Authority is also taking over regulatory responsibility for Northern Ireland credit unions.
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The Compliance Committee of the Mutual Banking Code of Practice has released its Annual Report for 2010-2011.
It is the view of the Committee that Mutuals have a natural bias towards treating their customers well. It is part of their culture and of their history. However it did identify areas for improvement including:
The Committee concluded that the ‘breach’ register may still be being confused with the ‘complaints’ register for IDR and EDR purposes. Some Mutuals have advised that they have only one register in place and that this register only reports on complaints data, without the option to also report on whether there has been a breach of the Code.
Most individual breaches reported related to the categories of:
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Treasury has published a Consultation Paper on Proposed Financial Institutions Supervisory Levies for 2011-12 seeking industry views on the proposed financial sector levies to apply for the 2011-12 financial year.
The paper discusses potential impacts of the proposal on each industry sector and institution regulated by the Australian Prudential Regulation Authority (APRA) including ADI’s, life insurers and friendly societies, general insurers and superannuation funds. The views provided on the paper will be taken into account in the determination of the levies to apply next year.
The financial institution supervisory levies are set to cover the operational costs of APRA, and certain market integrity and consumer protection functions undertaken by the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO). The relevant ASIC costs include the operations of the Superannuation Complaints Tribunal.
The Minister is expected to determine and announce the 2011-12 levies before the end of the current financial year.
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The Treasurer’s Economic Note of 28 November talks about another banking system pillar based on CUBS:
Next month, I’ll announce a new package of reforms to further promote competition in the banking sector and build on the action we’ve already taken. I’m determined to see another pillar in our banking system built from the combined competitive power of our mutuals, credit unions and building societies, because I’ve always been a big believer in their capacity to be a strong force for competition in the banking sector. Australia has 104 credit unions and 9 building societies, with around 4.5 million members, who, collectively, are the fifth largest holder of household deposits in the country. Some mutuals offer mortgage rates as much as 1 percentage point cheaper than the big banks, with independent analysis by InfoChoice showing that borrowers could save over $30,000 over the life of their loan if they switch to a credit union or building society. But most importantly, mutuals are not-for-profit lenders – so unlike the banks they make it all about their customers and not about grabbing profits – they put their profits back into cheaper rates, lower fees, and better customer service – and their higher customer satisfaction ratings are the proof of the pudding.
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At the Abacus Convention in Adelaide this week I was pleased to meet Lyn Milton from the Australian Credit Union Archives Trust.
The brochure on the first Aboriginal credit union (Cherbourg Credit Union) was fascinating but the feature on Jack Lange (who founded Langes Lawyers in 1960 and advised many credit union pioneers) was especially justified.
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From time to time we are asked what a credit union’s current name is, or, more usually, who did it merge with?
Courtesy of the Australian Credit Union Archives, you can now obtain a searchable spreadsheet showing the current and former names of many credit unions with some notes and key dates.
This is a useful document. Have a look at their website for their other publications.
APRA has a list of current credit unions here.
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Shortly prior to its merger with Community CPS Australia Ltd, United Credit Union Ltd made a civil penalty application to the State Administrative Tribunal of Western Australia in relation to contraventions of 7 key requirements of the Consumer Credit Code. United asked that the Tribunal also take into account contraventions of 13 non-key requirements of the Code.
The contraventions were identified during due diligence in preparation for the merger. Overall they affected in excess of 17,000 credit contracts. Upon the merger taking effect Community CPS became the successor in law to United, and continued the application in that capacity.
United, and Community CPS as its successor, offered to make ex gratia payments of compensation to borrowers affected by three of the contraventions.
The Commissioner for Consumer Protection intervened in the application to represent the interests of affected borrowers.
The application was heard by the President of the State Administrative Tribunal, His Honour Justice John Chaney, on 4 March 2010. His Honour delivered an oral judgment at the conclusion of the hearing.
His Honour made declarations that United had contravened key requirements of the Consumer Credit Code. However, he found that in all the circumstances it was inappropriate to impose any civil penalty. His Honour found that:
• The contraventions by United were not deliberate. By and large they arose from system failures.
• Community CPS was not responsible for the conduct which constitutes the contraventions, although it accepted legal responsibility for the consequences of that conduct.
• The conduct of Community CPS was ‘commendable’. It had acted in a ‘very responsible way’ and had accepted its responsibilities for compliance with the Code in a way which one would hope to be able to expect from all financial institutions.
• The voluntary payment of compensation by Community CPS was an important factor to be taken into account in deciding whether a civil penalty should be imposed, as was the expense which Community CPS had incurred in dealing with the matter.
Langes+ acted for United and Community CPS in relation to the application, and partner Shannon Adams represented them before the Tribunal.
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The USA Move Your Money campaign urges depositors to “move their money out of bigger banks and into smaller, community-oriented financial institutions that generally avoided the reckless investments and schemes that helped cause the financial crisis.”
USA Credit unions are specifically mentioned as worthy recipients of deposits.
The campaign describes US banks’ relationship with their customers as an “abusive, dysfunctional relationship”: see this video by Bill Maher.
The US satirical current affairs program Colbert Report is now shown weeknights on ABC2.
There is a video of Stephen Colbert’s interview earlier this week with Eugene Jarecki from the Move Your Money campaign here.
Of course the USA banking and credit union system is different from Australia’s and Australia’s banks did not need bailing out.
And Australian banks have actually increased their share of the market post-GFC.
But it is interesting that the campaign focusses on customer relationships.
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The Australasian Mutuals Institute (AMInstitute) Mutual ADI Directors’ Compliance Manual is maintained by Langes+ for the exclusive use of AMInstitute members.
The Manual covers 53 areas of law and topics of interest for AMInstitute members.
Langes+ keeps the Manual up-to-date.
The Manual is available only from AMInstitute. Download order form.
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Next week (9 November) I'll be on the Gold Coast for the Abacus Convention. If you're going, please introduce yourself. Or, if you want to organise a time to meet, email me at djacobson@langes.com.au.
I'll be arriving on the Monday morning and leaving on Wednesday afternoon.
Most of the Langes partners will be there: Richard Joice will be at the Race Day on Saturday and the Golf Tournament on Sunday. Please say hello.
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