Imagine if, as a consumer, you could get away with an apology when you
failed to comply with your obligations.
Failed to make your mortgage payments for the last six months? That's OK;
we accept it was just an oversight.
Forgot to check your neighbour had a driver's licence before you lent them
your car? No problem! We'll pay your insurance claim, as long as you
promise to be more careful in the future.
Sound absurd? Well if you flip it the other way, that's how our financial
system often works at the moment.
As CHOICE's submission to the banking royal commission argues, we're far
too willing to let financial firms get away with an apology while in
reality they resist anything that would force them to change their
practices.
This is the pattern we saw with the financial advice industry. Despite the
major scandals around the time of the global financial crisis, the industry
fought hard to resist further regulation. The big banks argued they weren't
the cause of the problems, but in subsequent years every one of them has
been forced to introduce a remediation scheme for victims of poor advice.
When then Commonwealth Bank CEO Ian Narev made his much-publicised apology
to the bank's financial advice clients in 2014, he used that very same
speech to argue that financial advice laws needed to be watered down.
The insurance industry is no better. Despite major floods in Coffs Harbour
in 1996, Katherine in 1998 and the Hunter region in 2007 that saw many
consumers' claims denied, the industry paid lip service to the problems
without any genuine attempt to solve them.
It took the catastrophic floods that hit the eastern seaboard in 2010-11
for the government to step in, using regulation to enforce a common
approach to flood cover.
We're seeing a similar pattern in relation to mortgage broking right now.
Investigations by both CHOICE and the Australian Securities and Investments
Commission have pointed to serious risks, with hefty sales incentives and
lax standards meaning that consumers are often offered poor deals and
encouraged by brokers to borrow more than they need.
The mortgage broker industry has said it's taking action, but in reality it
has no interest in addressing the core problem: that brokers are free to
recommend the mortgage that pays them the highest commission, rather than
the one that's best for you.
If there's one lesson to be learnt from these experiences it's that we have
to be radically more sceptical when industry asks us to trust it to fix things.
Where the best way to protect consumers is by dismantling the business
model that causes them harm, firms have no incentive to act.
When things go wrong, we need less trust, faster action. That's our message
to the royal commission.
Alan Kirkland, CHOICE CEO
Email: alan@choice.com.au
Twitter: @AlanKirkland
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