The lessee had a contract with the St George Bank from 1997. During the next 8 years the loan was paid in accordance with the contract.
By May 2004, the St George Bank invited the lessee of Caves Houses to sign a new contract to replace this older version. Given the previous seven-year relationship between the lessee and the bank there was no reason to expect the bank would act in any other manner than as a model banker. However, this contract did not contain all the relevant clauses. The contract was bound the Code of Banking Practice (the code). However, it was also bound by other relevant documents that were kept from the lessee and bank customers for 10 years.
During this period, the bank had a contractual duty to investigate complaints. However, the bank was able to avoid its responsibilities under the contract. This is part of a wider problem with the self-regulating banking industry.
In 2001, following decisions by the federal government and the then Minister for Finance, Joe Hockey, self-regulation in the banking sector was introduced. This would change the dynamics of customer protection for the next fifteen years.
Within a short time, the leading Australian banks restructured the 1996 code produced by the Australian Bankers Association (the ABA). The code was intended to be an integral part of the banking contracts, and prescribed the practices banks were required to follow. It also restricted banks from acting dishonestly. The code was promoted by the ABA as being a binding contract between the bank and its customers. The leading banks stated the code was:
"a binding agreement between you and your bank... [and] will come into effect when your bank adopts it. [It] establishes the banking industry’s key commitments and obligations to its individual and small business customers on standards of practice."
CCMC and its Hidden Constitution
In 2004, after recommendations by an independent review, an external compliance monitoring body was created. This was the Code Compliance Monitoring Committee (the CCMC) and it was initially designed to not only investigate and make determinations on complaints, but to ‘name and shame’ non-complying banks.
However, the CCMC was also forced to operate under a constitution. This was approved by the directors of the ABA and significantly curtailed the CCMC’s ability to investigate complaints and name banks that breached the code. The leading banks were now able to use this constitution to avoid their obligations under the contract to resolve disputes.
The ABA directors had become part of an elaborate scam, which allowed the leading banks to sidestep their promise to investigate complaints. Of most concern was the fact that the constitution had become a major loophole for banks, but was not available to bank customers.
An Intricate Web of Deception
Clause 34 of the code provides an opportunity for customers to file complaints with the CCMC if they believe their bank breached the code. However, the constitution states that the CCMC cannot investigate a complaint or breach of the code where it is, or may be, determined in another forum.
The constitution of the CCMC defines ‘forum’ very widely. It is: “any court, tribunal, arbiter, mediator, independent conciliation body, complaint/dispute resolution body, complaint/dispute resolution scheme… or Ombudsman, in any jurisdiction."
Any complaint or code breach filed with a leading bank can therefore be deemed by a code-subscribing bank to be a matter for another forum. This denies customers their right to have breaches of the code investigated by compliance monitors.
Under the 2003 code, subscribing banks were required to investigate all "complaints other than those that are resolved to [customer’s] satisfaction … at the time they are brought to our attention”. Subscribing banks told customers in their contracts that the CCMC would monitor compliance under the code, investigate, and make determinations on any allegations of code breaches.
Between 2004, when the constitution was adopted, and 2012, there were 2.5 million complaints made against the leading banks, but only 200 complaints were investigated. The Code of Banking Practice was obviously no longer effective.
The decision made by the fourteen code subscribing banks to approve a constitution, intended to take away the fundamental rights of customers, was problematic and suspiciously “cartel-like”. Under Section 52 of the Trade Practices Act (1974), this may constitute a crime.
St George Bank’s Contract - What Contract?
On 24 May 2004, the lessee entered into a standard contract with the St George Bank. It relied on three documents: Facility Offer, General Standard Terms and the Code of Banking Practice.
It is apparent that there was a fourth particularly relevant document that was missing from this contract – the constitution of the CCMC.At this stage, the constitution had not been published nor was missing from the contract.
This missing document set out the Terms of Reference for the CCMC. St George Bank was one of fourteen leading banks to approve the constitution. The architects of this constitution were directors of the ABA and Chief Executives of the code subscribing banks. The leading banks would rely on the constitution to escape their contractual duties to customers for the next 10 years.
The JMA Parties filed submissions in relation to the three documents that St George Bank provided to its customers between 2004 and 2013, and the missing fourth document that was concealed, with the Competition Policy Review on 4 November 2014. The submissions allege that the contracts of the St George Bank and other leading banks were unconscionable, because the banks had varied the terms and conditions. The JMA Parties also filed a similar submission with the Financial System Inquiry.
The fourth document, the constitution of the CCMC, negated obligations by the banks to comply with the code and investigate complaints. The constitution severely limited the CCMC’s ability to investigate complaints. Following the St George Bank’s decision to vary the lessee’s contract, the JMA members filed complaints with the bank’s internal complaints manager and to the CCMC. No investigations were made by any party, at any time.
To Sum Up…
Australian banks have yet to explain their unconscionable variation of contracts and the concealment of the CCMC Constitution, which was a key document in all major bank contracts. Similar cases internationally have resulted in successful prosecution of major banks, with large settlements and fines.
The dishonest conduct by Australian banks would have a significant impact on events at Jenolan in the period following their contract with the lessee. The following chapter will discuss the bank’s knowledge the Jenolan Caves Reserve Trust was being operated unlawfully and that they were not meeting their service obligations.
JMA Parties would appreciate feedback on this Chapter, including information that should be corrected.
For more information on how major banks have defrauded thousands of customers check out our submission to the Parliamentary Committee on Corporations and Financial Services. They recently published our submission on the impairment of customer loans which you can read at http://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/customer_loans/Submissions, the Submission 120 is on the bottom of page 6.
 Parliamentary Inquiry into Banking Competition, December 2010, Submission No 109.
 14 May 2004, Code of Banking Practice Finetuned for Guarantors, http://www.bankers.asn.au/Code-of-Banking-Practice-Finetuned-for-Guarantors/default.aspx, accessed on 6 November 2010.
 September 2004, Code of Banking Practice Fact Sheets: www.bankers.asn.au/Default.aspx?ArticleID=906,accessed on 6 November 2010.
 Submission to Review the Code of Banking Practice 2007-2008, CCMC: Annexure B, p2, assessed at
 Wilkie, A. MP. Quoted in Daily Telegraph, “Current Banking Code Doesn’t Work: Wilkie”, 21 August 2012. http://www.news.com.au/national/breaking-news/current-banking-code-doesnt-work-wilkie/story-e6frfku9-1226454963367, accessed on 19 March 2015.
 According to Part IV Division 1 of the Trade Practices Act 1974 (Cth), provisions of a ‘contract, arrangement or understanding’ may be taken to be cartel provisions if they directly or indirectly prevent, restrict or limit the capacity of businesses to supply services.
Two criteria must be met in order for an agreement or arrangement to constitute a cartel provision: (1) intention to prevent, restrict or limit the capacity, likely capacity or actual supply of [code monitoring and dispute resolution] services must be present in the agreement, and (2) subscribing banks and financial institutions must either be competitors or would be competitors but for an agreement to the contrary. “The Australian Bankers’ Problematic Code”, 5 December 2010, page 10 and page 26-27.
 Parliamentary Inquiry into Banking Competition, December 2010, Submission No 109.
 Professor Ian Harper Submissions dated 30 October 2014 and 14 November 2014 at: http://competitionpolicyreview.gov.au/files/2014/12/JMA_Parties.pdf