Have you had a close look at Wayne Swan’s December 2010 bank package? Don’t worry if you haven’t yet as you haven’t missed much.
For those who have, it’s clear that it’s so light handed and minimalist that the big banks aren’t bothered by it. In fact, the big banks have even told the Senate banking inquiry that they actually like aspects of the package.
So much for Swan’s tough talk regarding the big banks. Given how much of a fizzer the package will be, one has to wonder if Swan’s announcement was more about being seen to be “doing something” in response to the public anger towards the big banks.
With so much expectation created in the lead up to the announcement by Swan and his Government’s spin doctors, it’s disappointing that Swan has missed a golden opportunity to promote real competition to the 4 big banks.
If there’s one sure thing about Swan’s latest bank package is that, just like his 2008 bank switching “package,” the problem of the market power and dominance of the 4 big banks will not go away.
Just wait and see what happens next time the RBA announces a rise in official interest rates. The harsh reality is that 4 big banks will again cry poor and raise their mortgage rates above the RBA rise.
Sadly for struggling Australian borrowers Swan’s latest bank package will do nothing to put downward pressure on interest rates. Like the failed Fuelwatch and GroceryChoice “packages,” it’s clear that we get a lot of talk and grand promises from this Federal Government but little in the way of real and effective action to help drive down prices and interest rates for the benefit of consumers.
So what is the problem with Swan’s bank package? Well the devil is always in the detail and Swan’s bank package is no exception. Here are just some of the concerns with the package:
The proposed outright ban on exit fees will only apply to new home loans from 1 July this year. This doesn’t help all those existing customers with mortgages. All these existing customers will continue to pay exit fees if they seek to switch. Another problem with an outright ban on exit fees on new loans is that the 4 big banks will simply cover their costs from establishment fees or other fees;
Swan’s proposal to “boost consumer flexibility to transfer deposits and mortgages” is certainly window dressing as this merely refers to conducting a “feasibility study” on “account number portability” and “speeding up” the development of “frameworks” for transferring Lenders Mortgage Insurance. Account number portability raises technical challenges and may take years to implement and even then offers limited value. On Lenders Mortgage Insurance Swan could have made a real difference by giving borrowers an immediate ability to transfer the insurance on a loan from institution to institution;
Swan’s proposal to introduce “a mandatory key fact sheet for new home loan customers” will be of little, if any, practical value to consumers given the considerable information already publicly available to assist consumers to compare the cost of home loans between financial institutions. In any event, the banks and mortgage brokers already provide this level of information to consumers;
The proposal to empower the ACCC to prosecute anti-competitive price signalling will rarely, if ever, be prosecuted by the ACCC because the proposal requires the ACCC to prove that the “price signalling” had the “purpose” of “substantially lessening competition.” Purpose and a substantial lessening of competition are both notoriously very difficult to prove in court. The proposed prohibition on any “private communications” between competitors regarding prices will also be next to impossible to enforce in practice as detection of such private communications are virtually impossible without a new express power for the ACCC to tap phones under this proposed new law;
The proposal to fast-track legislation to get “a better deal for Australians with credit cards” simply focuses on giving consumers some additional information on credit cards and requiring consumers to “pre-agree” to go over their credit card limit or to get unsolicited credit limit extension offers. Additional information and requiring a consumer’s agreement in advance regarding credit limits will do nothing to put downward pressure on credit card interest rates or deal with any excessive credit card fees;
The launch of “a national community awareness campaign to empower consumers in banking” including a new “Government protected deposits” symbol is simply a PR exercise which is short on detail. Highlighting the availability of alternatives to the 4 big banks doesn’t help consumers if they can’t seamlessly switch to those alternatives or if the big banks remain so dominant;
Establishing a taskforce to enhance ATM competition reforms is of little comfort to consumers as any proposals arising from the taskforce may take years to implement and may not change the competitive landscape favouring the 4 big banks;
Swan’s announcement that some form of retail guarantee will be a permanent feature of our financial system fails to indicate if the current level of retail guarantee will continue. While currently the Federal Government guarantees deposits of up to $1milion, the danger here for consumers is that the level of guarantee will be watered down after the current guarantee ends in October 2011;
Swan’s plan to provide up to $4 billion investment to support the securitisation market is a drop in the ocean as much more liquidity is needed in that market to provide a pool of competitive priced funds for smaller lenders;
Allowing all banks, credit unions and building societies to issue “covered bonds” to raise funds will actually assist the 4 big banks in extending their dominance as they will be much better placed to issue such bonds.
The bottom line is that Swan’s package is a fizzer as it doesn’t provide any immediate relief for struggling Aussie families increasingly financial victims of the market power and dominance of the 4 big banks.