Inquiry into consumer protection in the banking, insurance and financial sector
Hearing, 26 April 2017, Sydney
Susan Quinn, Senior Policy Office, Consumer Action Law Centre
With Katherine Temple, Senior Policy Officer, Consumer Action Law Centre
Good afternoon and thank you for the opportunity to appear today on behalf of Consumer Action Law Centre.
Consumer Action is an independent, not-for profit organisation based in Melbourne. We work to advance fairness in consumer markets, particularly for disadvantaged and vulnerable consumers, through financial counselling, legal advice and representation, and policy work and campaigns.
This inquiry is one of many examinations of the financial services sector of late.
It’s been a festival of scrutiny.
Yet in the face of all of this, the banks and insurers are yet to fully act on what are some clearly problematic practices.
I’d like to briefly comment on three areas which we think are ripe for reform – these are credit cards, bank fees and add-on insurance.
Australia is on the verge of a debt disaster. We have $32 billion of credit card debt currently accruing interest. We have more than 16 million credit card accounts with total limits totalling more than $151 billion.
These staggering figures are reflected in our experience. Every week, Consumer Action’s financial counsellors receive at least one call from a person with credit card debt exceeding $100,000. This extreme level of credit card debt has primarily been driven by grossly irresponsible lending practices, as well as unsolicited credit limit increase offers and dubious balance transfer deals.
To cite an example – last month our financial counselling team was contacted by Harry*.
Harry told us that he and his wife’s only income was from Centrelink payments. They had each been given ANZ personal loans, totalling $13,000. Harry said they took out the loans to cover unexpected household and medical costs.
Harry also said that when they took out the loans, they already had four credit cards with ANZ, CBA, NAB and Coles, on which they owed a total of $9,000.
They are now struggling to make repayments. Most of their cards and the loans are in arrears or in hardship arrangements. Their house could be at risk if they fall into default & the creditors take legal action.
We mention Harry’s predicament as just one of the many cases of irresponsible credit card and loan issuing that we see each week.
Phil Khoury’s Independent Review of the Code of Banking Practice made recommendations to fix some of these problems. Mr Khoury recommended that the banks stop making unsolicited credit card limit increase offers. This was rejected by the banks, under the guise of preserving ‘customer choice and preference’.
Mr Khoury also recommended that banks only give credit cards to people who can afford to pay them off in a ‘reasonable’ time. This recommendation was accepted by the banks, but as yet there are no details about what the banks actually consider a reasonable period to be. We think it should be 3 years, but who knows what the banks think.
These two reforms are critical. But the banks refuse to make the changes necessary to save Australians from crippling debt.
Simply because the people failing to repay their full credit card balance every month are the most profitable customers. Australians in persistent credit card debt who find themselves ‘credit limit surfing’ to make ends meet are paying thousands of dollars in interest every year.
Speaking of profits, we know that Australians paid nearly $12 billion in bank fees in 2014 alone.
In the face of political and community pressure on banks to treat customers fairly, and a recommendation from Mr Khoury to reign in default fees, NAB has tripled its Credit Card late payment fees over the last year, from $5 to $15.1 Westpac has followed suit, having raised its late payment fee from $9 to $15 in January. So both banks increased their late payment fees by 66% this year alone.
Unfortunately, excessive bank fees seem set to continue, following the recent High Court decision that ANZ was entitled to charge credit card late payment fees of up to $35, even though this amount did not relate directly to the costs actually incurred by ANZ for people paying their bills late. Apparently these excessive fees protected ANZ’s ‘legitimate interests’. Clearly without law reform, Australians will continue being stung by these ludicrous fees.
And finally, add-on insurance is the third area in financial services that we think needs a major mop up.
Last year we saw three ASIC reports on the serious problems with add-on insurance sold in car yards. They painted a damning picture where insurers pay four times as much in dealer commissions as they pay in claims.
ASIC also reported in that 2011 people were being sold add-on Consumer Credit Insurance through banks, credit unions and building societies without knowing it.
The add-on insurance market is, to use ASIC’s words, failing consumers.
ASIC is pushing insurers to adopt a delayed opt-in sales model for add-on insurance in car yards. The Khoury report also recommended a one-day delay in the sale of Consumer Credit Insurance through banks. But the insurers and banks have so far refused to entertain the idea of doing something to effectively curb the widespread rip offs.
We would encourage the Committee to consider legislating for an opt-in sales model for add-on insurance. It is the only practical option in the face of industry inertia.
Thank you again for the opportunity to appear here today. We are very happy to take questions.