Will the Treasurer’s Banking Reforms Help You?
Apart from a radical few who hold contrarian views, the general consensus within the world of finance and economics is that stimulating competition in the banking sector is the way to ease the pain for consumers, especially mortgage owners.
The debate is not about whether creating additional competition is the answer but how this and in turn a healthy and sustainable banking system, can be achieved.
Consumer watchdog Choice welcomed the Federal Government’s reform package aimed at re-vamping the banking system, saying the Treasurer Wayne Swan’s 10-point plan is “a good starting point”, but adding that it needs to go further.
The Treasurer has rolled out a suite of reforms aimed at keeping the Big Four banks honest.
They include (as outlined in the Herald Sun):
- Banning bank home loan exit fees;
- Looking at making mortgage loans portable;
- Forcing lenders to create simple one-page reports explaining fees and interest;
- Boosting powers to the competition watchdog;
- Creating a “fifth pillar” of banking based on credit unions and building societies;
- Injecting another $4 billion into the loans market;
- A community education campaign;
- Crack down on excessive credit card fees;
- Review ATM fees
Choice said the package “opens the door to reform but the major banks must now get in the room” in order to make a real difference for consumers.
Choice’s lukewarm response echoes the sentiments of other consumer groups. While The Australian Financial Review reported: “Consumer groups welcomed the government’s banking reforms yesterday saying the initiatives were an ‘enormously important step’ in tipping the balance of power back towards the consumer”, The Australian took it a step further, saying: “consumer groups were underwhelmed by the package”.
One point that Choice applauded was the fact that the Government’s proposals would make it easier for consumers to switch financial institutions and help smaller lenders to challenge the Big Four – two key moves that Choice has long argued would help drive competition in banking.
The consumer group was also impressed with proposals aimed at putting power and money back in the hands of consumers. These include:
- Mandatory fact sheets for people looking for a good home loan deal, a ban on all mortgage exit fees, and transferability of lenders’ mortgage insurance.
- Fast tracked credit card reform legislation and a review of ATM fees.
- A range of support for credit unions and building societies.
“Done the right way these proposals could mark the start of a major shift in banking – placing more power in the hands of consumers. And we expect this to be just the first steps of a longer process of wide-ranging reform,” says Choice better banking campaign director, Richard Lloyd.
“Some say the banks won’t listen to this. The Government has opened the door to reform. The banks now need to step into the room. We need to see more leadership from the banking industry if these plans are to be turned into effective action that makes a real difference to ordinary Australians. In particular, we want the banks to take the hassle out of switching now.”
The ‘People’s Watchdog’, Choice, says it will continue its campaign for better banking and play a crucial part in the consultation process to make sure the practical changes are put in place as quickly and as effectively as possible.
The message from Choice to consumers is, “you can help yourself ahead of these reforms by becoming more savvy in your personal banking”.
“We need to see the Government keep its nerve on banking reform until we have a genuinely competitive sector, and for all the regulators to pay as much attention to competition in banking as they do financial stability,” says Lloyd.