HOUSE OF REPRESENTATIVES, 9 DECEMBER 2020
In 1935 a banking royal commission was held to look at the critical impact on the Australian economy of problems in the banks. It was two generations later that Labor found itself in the position of again calling for a royal commission into the banking sector in Australia. Those calls were ignored by the government, which called it a ‘populist whinge’ and resisted for more than 18 months a royal commission into the banks.
When Ken Hayne finally lifted the lid on the misconduct it was clear to everyone that the call to have a royal commission had been the right one and that the Liberals had been wrong to vote 26 times against a banking royal commission. Yet here we are today with the Liberals advocating against the number one recommendation of the Hayne royal commission, recommendation 1.1: 'the National Consumer Credit Protection Act should not be amended to alter the obligation to assess unsuitability.'
Does Australia really need more irresponsible lending? Is that the real need of the Australian economy right now—a surge of irresponsible lending? Well, consumer groups don't think so. The banks themselves didn't ask for it. And when we asked the Australian Securities and Investments Commission as to whether they had been consulted, Sean Hughes told me:
I'm the commissioner with responsibility for credit, and I was first advised when I read the Treasurer's media statement through the media on the morning of 25 September.
So CHOICE, Consumer Action Law Centre, Financial Counselling Australia, Financial Rights Legal Centre say it's the wrong idea. If there are problems around complexity, let's engage with stakeholders. But the government has no credibility in standing up for consumers when it is calling for a surge in irresponsible lending in a country whose household debt levels are among the highest in the world, and in the wake of new research that's come out in recent weeks showing that more indebted households can be a drag on growth.
There are other issues that the House economics committee has explored this year. ASIC has told us that they remain frustrated with the pace of compensation schemes. ASIC internal briefing documents say:
…the institutions have demonstrated a willingness to spend large amounts of money on external consultants and management time, rather than comprehensively deal with the problem.
With $3 billion of compensation still waiting to be paid to customers, I'd urge the big banks to spend less money on paying consultants to delay payouts and more money on consumers. Even if a few people end up being slightly overpaid it is better to put the matter to rest.
We've explored the issue of loyalty taxes, such as Suncorp's loyalty tax that can cost its loyal consumers thousands of dollars a year. Westpac's former CEO, Brian Hartzer, was one of the strongest to push back against me when I called it a ‘loyalty tax’, but that's what it is. It is a bank charging two different prices for the same product—one to customers who've signed up previously, another to new customers. As RateCity’s Sally Tindall points out: 'Over 50 per cent of banks' home loan "books" are typically funded by deposits', so when rates go down banks are cutting rates for depositors and savers. It's simply not fair for them to be charging one price for their loyal customers and a lower price for new entrants and demanding that customers shop around in order to get the best deal.
I asked questions about the Banking Code Compliance Committee's recent report, which kept confidential which banks had done worst. It turned out NAB had the highest number of breaches of the major four. I asked each of the major four CEOs how they would defend their pay packets relative to the pay of a teller. In an era in which CEO pay has skyrocketed relative to average earnings it seems appropriate to ask these CEOs how they feel about the rising pay disparities within their organisations. Just a couple of generations ago it would have only taken a decade or so for a teller to earn as much as the CEO earned in a year. Now it would take multiple careers for a teller to earn what the CEO takes home in a single year.
I have asked all the major bank CEOs why they don't adopt the same full-fee transparency for international remittances as TransferWise does. Why they are burying the true cost of transferring money overseas in the exchange rate spread, rather than simply reporting to customers the total of the flat fee and the exchange rate spread relative to the mid-market rate? Come clean with people. When you're dealing with some of the most vulnerable customers in Australia—a migrant taxi driver who might be working extra shifts to send money back to Fiji—why should a big bank be pulling the wool over their eyes as to what they really pay when they send money overseas?
I've asked about the buy-now pay-later scheme and I got a response from the CEO of the Commonwealth Bank, Matt Comyn, who said, 'It looks like credit to me.' It's an issue I hope the Standing Committee on Economics will explore more next year. I've been critical of the decision of some banks to fly very close to the wind on dividends. While New Zealand banned bank dividends, Australia said that there would be a cap equal to half of earnings. CBA went almost right up to that cap, something I believe was a mistake at a time when they were receiving such significant taxpayer support. We also had an extraordinary hearing with ASIC in which the chair, James Shipton, announced that he was stepping down. The government appropriately initiated an inquiry by Vivienne Thom, but it's occurring at a glacial pace. At a time when we have a recession and a pandemic, the government is leaving ASIC leaderless for a full two months. An inquiry that could have been done in a fortnight is taking months, and the Australian corporate watchdog is being left leaderless.
In the area of superannuation, an area I know the member for Whitlam and the shadow Treasurer have been assiduous on, I focused on the issue of AMP charging product providers as much as $22,000 to be on the AMP approved product list. I've been critical of OnePath and their decision to white-label a low-cost Vanguard product, which had a cost of just 14 basis points, and charge customers much, much more. It does raise the broader question, which the members for Fraser, Cowan and Dunkley have raised on the House Economics Committee, of how a for-profit superannuation fund adheres to the best financial interests duty. Mercer has been a particular disappointment. When I confronted them in the hearings about their high administrative costs, they claimed:
… the numbers you're quoting are not consistent with my understanding of what the total fees would be.
They then pledged to take it on notice and came back with an answer that said that they've undertaken a review and they don't think fees are the main measure of value of competitiveness. It's a pathetic response. Don't try to pull the wool over the eyes of the committee in the hearing, saying that we've got the wrong facts, and then come back with an answer to a question on notice that effectively says, 'Yes, the facts are right, but we take a different interpretation of them.' That sort of treatment of the committee is completely inappropriate. The committee will continue to pursue the issue of high fees in superannuation funds, particularly funds like Mercer that think that it's alright to be charging fees on a $10,000 account balance ranging from 2.11 to 2.32 per cent. These are startlingly high fees.
Finally, we've pursued the issue of insurance, an issue that the member for Kingsford Smith has focused on strongly—in particular, payout rates from certain funds that are as low as 55 per cent among those who were advised. We've also pursued the issue of junk funeral insurance provided by Youpla, formerly the Aboriginal Community Benefits Fund, who showed a distinct lack of remorse when they came before the committee and appeared to be unprepared to deal with the reality of the Hayne royal commission.
Authorised by Paul Erickson, ALP, Canberra.
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