Banks must put customers first - Transcript, ABC RN Breakfast





Subjects: Big banks appearing before the House Economics Committee tomorrow; Labor campaign review; Innovation + Equality.

HAMISH MACDONALD: The chiefs of Australia's biggest banks will be back in Canberra tomorrow for their twice yearly parliamentary grilling as they face pressure for not passing on the Reserve Bank's latest rate cut in full. The former Turnbull Government launched the hearings three years ago while fending off calls for a banking royal commission. The hearings have now been expanded in the wake of the Hayne Commission, and this time around it also examined the superannuation sector as well as smaller banks. Andrew Leigh is deputy chair of the Standing Committee on Economics. Welcome to Breakfast.


MACDONALD: We've had a royal commission. There's an ACCC inquiry into mortgage practices. So what will you be interrogating the chiefs of Westpac and the Commonwealth Bank about tomorrow?

LEIGH: At the heart of the Hayne Royal Commission was the notion that greed and short term profit had been put ahead of basic standards of honesty. The Hayne Royal Commission called not just for tweaks in procedure, but for deep cultural change in our biggest banks. So I’ll be asking the big banks how they're going about implementing those significant changes, how they're going about ensuring that customers are placed first and that there will never again be the sorts of scandals that we've seen.

MACDONALD: At the time of the royal commission though, there was this question about how you actually mark the change of culture. Are there clear metrics for determining whether the culture of the banks has changed?

LEIGH: Part of it is ensuring that the banks are looking after those who've been wronged. The Commonwealth Bank has paid over a billion dollars in compensation over the last five years to over half a million customers. We know that issues such as loyalty taxes are still an issue. I'll be asking tomorrow whether or not either Commonwealth Bank or Westpac are charging more to their existing customers than to their new customers. This loyalty tax shouldn't exist - you shouldn't have to keep on phoning around to make sure you're getting the best deal from your own supplier.

MACDONALD: On the question of a loyalty tax, Westpac chief Brian Hartzer is skeptical of that notion. It's obviously when discounts are offered to new customers but not to existing ones. I want to play a bit of audio of Brian Hartzer.

BRIAN HARTZER: If you think about it from a competitive point of view, we want to keep our customers happy. That is as fundamental to any business, but also we want to compete and every business out there competes for new business. And the flip side of this notion of a loyalty tax is the suggestion that we wouldn't go out and compete aggressively for new business, which which we do. And so I find the whole notion a little odd.

MACDONALD: Does he have a point? 

LEIGH: I think Australians are pretty frustrated that if you want to get a fair deal from your electricity company, you have to phone them every year and make sure you're getting the best discount. When you want a fair deal on car insurance, you’ve got to keep phoning back and making sure you get the best deal. And if you want to get a fair deal on a mortgage provider, you have to waste your own time on making sure that you're getting the same deal. That privileges people who have the time and the information networks to keep on making those calls. And it's just frustrating for so many of us, feeling that our supplier isn't getting us the best deal that they would get us if we walked in brand new through the door.

MACDONALD: But can I just ask you to address the point that Brian Hartzer from Westpac makes, which is that the idea that big companies like these wouldn't aggressively pursue new customers is crazy.

LEIGH:  I disagree. I think it's appropriate to be offering your existing customers the same deal. It’s a penalty for those who have stayed loyal to the company and it's taking advantage of people who are not spending time shopping around-

MACDONALD: So how do you go after new customers if you can't incentivise them to join your institution?

LEIGH: You offer existing customers the same deal. This is something that we’ll certainly be pursuing tomorrow, and I think it does go to the cultural recommendations of the Royal Commission. The Royal Commission again wasn't just about saying that Westpac had the ‘fees for no service’ issue and the breach of responsible lending laws for the automated loan assessment system, but also criticised the way in which the banking sector was treating the Australian public. It was the most seismic report on banking in the post-war era. It's appropriate that we follow up on those recommendations.

MACDONALD: A particular point of contention is the passing on or not of interest rate cuts in full. The banks say that they're balancing the interests of mortgage borrowers, depositors and shareholders in their determinations that they make on this. Do you accept that?

LEIGH: Banks are still extraordinarily profitable. The big four will this year make a collective profit somewhere in the order of $27 billion. We know that their share prices rose on the day the Royal Commission came out, indicating the Royal Commission was not as significant in some respects as had been expected. 

MACDONALD: But those profits would make their shareholders very happy. 

LEIGH: Absolutely it would-

MACDONALD: And it would also mean that for depositors, their money was in relatively safe hands.

LEIGH: But this sounds as though we're having this conversation before the Royal Commission came out. The whole point of the Royal Commission was the importance of putting customers first. Recognising that business needs to operate with a social licence, it can't just be about making sure that you always deliver the best returns for shareholders. Businesses need to also be looking after their employees. They need to be looking after their customers, and they need to be operating in a way in which they're putting proper standards of ethics at the top of the priority list. If they’re always putting greed first, they’re missing the whole point of the Royal Commission.

MACDONALD: When we talk to the banks though and to the industry representatives, they also make the point that the rate at which they can get access to the capital is not only determined by the interest rates set by the Reserve Bank of Australia. That they're in a global market for capital, it's competitive and there are other factors which influence this. They’re correct in saying this, aren't they?

LEIGH: That’s certainly true, although analysis by APRA a couple of years ago suggested that the cost of funds track the cash rate fairly closely. I think it would be useful in Australia if we had more institutions offering so-called tracker mortgages, which is a variable rate mortgage which is explicitly pegged to the cash rate. They're a pretty common product in Britain, and that would create more confidence because you would have a product that provided for explicit pass-through. You’ve also got to make sure that the system is as competitive as possible-

MACDONALD: But the banks, the banks themselves have poured cold water on that idea of tracking mortgages. They say that they'd need to charge higher prices than on the variable rate mortgages, because the cash rate as they say is not the sole influence.

LEIGH: Auswide is offering one at the moment. There’s no impediment to offering tracker mortgages, and I think it’d be in the banks’ interest to do so. We've also got to have competition. When Labor was last in office we scrapped mortgage exit fees and that made it easier for customers to change banks. Extraordinarily, Scott Morrison and Josh Frydenberg voted against that. If they'd had their way, there would still be mortgage exit fees impeding competition in the banking sector.

MACDONALD: So given all the things that we're talking about, do you see any evidence of cultural change in the way banks operate in Australia?

LEIGH: I think there's certainly some going on, but the whole point of this inquiry will be to go to the heart of that - to make sure that we're getting the appropriate treatment of vulnerable customers that the Royal Commission shone a light on. The Commonwealth Bank's charging of fees to dead clients affected over 2,000 people. We saw last month the Commonwealth Bank getting its first criminal charges against the major banks since the Royal Commission. So there's been progress that's occurred. The question that I'll be looking for tomorrow is whether that progress has been sufficient.

MACDONALD: Do you think the regulation in response to the Royal  Commission has been strong enough?

LEIGH: The Government's been surprisingly slow. I think they could have moved much more quickly in implementation, and certainly if Labor had won office we would have looked to speed up the implementation of the Royal Commission. It was after all delayed by 18 months. The Liberals voted against it 26 times in the parliament. They only wanted a Royal Commission into banking after the banking association called for one. So given that there were all those delays on the front end, further delays in the back end are a real issue.

MACDONALD:  Andrew Leigh, we do have to get to the news at seven o'clock. But today Labor will release its report on its election loss in May. Is this the end of the navel gazing or really just the beginning?

LEIGH: I think we need to move past the whole discussion of marketing, and on to the discussion of substance. I don't think the answer for Labor is to try and beat the ad guy in charge with a slicker ad campaign. It is fundamentally about asking the question: What are the policies Australia needs and how would Labor go about delivering them?

MACDONALD: So that’s a big project. That doesn't end today, does it? Actually that begins now.

LEIGH: Indeed, but it's a question of moving from the postmortem and the marketing discussions onto a conversation around the substance. From policy coherence comes a message. You don't start with a message and then bolt the policies onto the top of that. The story of Australia has fundamentally been a story of Labor reforms. Labor can't give up being the party of reform, if we do we give up our very essence. The Liberals can get away with throwing slogans around and just sitting back and doing nothing in the face of change. But that's not the Labor way. So we need to focus on the big issues - I’ve got a book coming out in a couple of weeks, Innovation + Equality, talking about some of those big challenges for Australia around how we become more entrepreneurial and more egalitarian.

MACDONALD: Andrew Leigh, we'll leave it there. Thank you very much. 

LEIGH: Thank you, Hamish. 


Authorised by Paul Erickson, ALP, Canberra.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.