Need to know
- The banking industry says it wants to earn back community trust following the shocking revelations of the royal banking commission – but is it fair dinkum?
- More than a year on, the banks are still marketing credit cards with shocker interest rates and taking forever to pay compensation
- We unveil a five-point plan to help the banks really change their culture and rise to the occasion to help customers survive the pandemic
When the banking royal commission finally drew to a close last year after bringing multiple examples of disgraceful behaviour to light, the industry seemed to understand its reputation was badly damaged.
Earlier this year – a year after the royal commission issued its final report in February 2019 – the Australian Banking Association (ABA) published an update on the industry's promised transformation into a more trustworthy service provider.
It highlighted a series of changes the industry had committed to, calling the program, "Earning Back Trust".
Despite the industry's avowed commitment to change, it looks a lot like business as usual in the banking world these days
The ABA – an industry body that represents the big four banks as well as others whose misdeeds were aired at the royal commission – said the "banks are fixing their culture" but "there's still a lot to do".
It also said "during this time of change, the banks are still open for business".
Despite the findings of the commission and the industry's avowed commitment to change, it looks a lot like business as usual in the banking world these days.
We agree there is still a lot to do.
That's why CHOICE is calling on the banking industry to truly embrace cultural change in this time of widespread job loss and financial distress at the hands of the COVID-19 pandemic.
If the industry really wants to earn back the trust of the community, there's rarely been a better time to do it
If the industry really wants to earn back the trust of the community, there's rarely been a better time to do it.
Today CHOICE releases a five-point plan to help the banking industry make that happen.
Debts across the board should be put on hold
Many banks have rolled out programs for home loan customers who have lost their income that allow them to defer mortgage repayments for six months.
That's a good thing, but it doesn't go far enough. Mortgage debt is just part of the problem. And deferring a loan repayment, of course, just means you'll have to pay more down the track.
The banks should pause all debts for people in hardshipCHOICE CEO Alan Kirkland
"The banks should pause all debts for people in hardship," says CHOICE CEO Alan Kirkland.
"That includes personal loans and credit cards – not just mortgages. We also need to ensure that people in hardship don't end up with larger debts, which is why all interest, fees and charges should also be paused."
Long-term credit card debt is a primary cause of long-term debt in general – it's time for the banks that flogged these products to write off the debt.
Credit cards – still a debt trap
In 2017, we reported that average credit card rates were 11.5 times higher than the official cash rate (which was 1.5% at the time – it's now 0.25%).
While the cash rate had fallen 3.25% since June 2011, average credit interest rates had only dropped six basis points – from 17.41% in mid-2011 to 17.35% in March 2017.
Deals for credit card holders have not improved much since our 2017 story. Average credit card rates have only dropped slightly since then.
The fact is, credit cards have long been the chief culprit in long-term consumer debt
And high rates are just part of the problem.
In 2018, Westpac and ANZ were ordered to pay back more than $20 million to credit card customers following an ASIC investigation.
The banks had been irresponsibly increasing credit card limits and misleading customers about interest rates and fees.
The fact is, credit cards have long been the chief culprit in long-term consumer debt, which is why we're calling for an interest rate cap of 10% on all cards.
This will make a huge difference to consumers forced to use credit cards as a borrowing tool in these troubled times to make ends meet.
As it stands, the big four banks still slug customers with standard rates of 20% or more (only NAB misses that sorry mark, at 19.99%).
And the "low rate" cards could be a lot lower than they currently are (ANZ 12.49%, CBA 9.9%, NAB 13.99%, Westpac, 9.9%).
The amount of interest consumers pay can have an outsized impact on household budgets.
Only two credit card products offered by the big four banks have an interest rate below 10%... outrageous when banks are reaping the benefits of a 0.25% cash rateCHOICE CEO Alan Kirkland
A $5000 debt on a 13.99% credit card, for instance, with no other purchases made and only the minimum payment paid every month, will blow out into a $10,947 debt over the 21 years and 11 months it would take to pay off the card.
The same scenario with an 8.99% card would see a borrower pay $7625 over the 15 years and 10 months it would take to pay off the card.
"We've seen interest rates drop on mortgages but remain stubbornly high on credit cards," says Kirkland.
"It's time for the big banks to help their credit card customers by dropping to a fair interest rate of no more than 10%. Right now, only two credit card products offered by the big four banks have an interest rate below 10%. This is outrageous when banks are reaping the benefits of a 0.25% cash rate. It's time to lower interest rates for all customers."
This time the banks owe you money
It's great when justice is served and banks are ordered to reimburse the customers they've ripped off in various ways.
It's not so great when it takes the banks forever to make good on the recompense.
In 2017, the Australian Securities and Investment Commission (ASIC) found that many major financial institutions, including AMP, ANZ, NAB, Commonwealth Bank and Westpac, had been charging customers fees for ongoing financial advice they were never given.
Australians wait an average of five years to collect money they're owned due to wrongdoing by a bank
At the time, the tally of wronged customers stood at 300,000, and total compensation was predicted to be $205 million.
That figure now stands at $749 million, with more aggrieved customers than ever waiting for the banks to pay them back.
But you're probably still waiting if you're one of those customers. And the above figure is just a fraction of the damages banks have been ordered to pay for a host of infractions.
We need the banks to hurry up and get this money back to Australians at a time when they need it the mostCHOICE CEO Alan Kirkland
As we reported in 2018, Australians wait an average of five years to collect money they're owned due to wrongdoing by a bank.
That's way too long, to say the least. We're calling on banks to speed up the process – a lot.
"The banking royal commission revealed misconduct that sees customers owed billions of dollars in remediation but banks are taking far too long to pay out," Kirkland says.
"We need the banks to hurry up and get this money back to Australians at a time when they need it the most."
Banking royal commission recommendations lie fallow
The recommendations in the final report of the banking royal commission read like a long-overlooked list of clear and simple ways to improve customer outcomes in the financial services sector.
Some of the recommendations have been turned into law at long last, including a best interest duty for mortgage brokers.
Unfortunately, we've already seen financial services industry lobbyists shamelessly use the coronavirus to try and kill off reform and vital consumer protectionsCHOICE CEO Alan Kirkland
But others have yet to be embraced by an industry that says it's committed to earning back trust.
Among those are:
- a compensation scheme, funded by industry, to make sure that when consumers are found to deserve compensation it is paid (unpaid compensation now stands in the tens of millions of dollars)
- a new Financial Accountability Regime that holds individual executives personally accountable for misconduct
- a ban on hawking financial products to unsuspecting Australians – especially insurance and superannuation
- a ban on the payment of commissions to mortgage brokers – so it is clear that they act for the person seeking advice, and nobody else.
"Unfortunately, we've already seen financial services industry lobbyists shamelessly use the coronavirus to try to kill off reform and vital consumer protections," Kirkland says.
"The banks can prove they recognise their role as an essential service and that they've learned their lessons by recommitting publicly to the suite of reforms from the banking royal commission."