Consumer Action Law Centre has welcomed the interim report from the Murray Inquiry into Australia’s financial system, and its acknowledgment that fairness, along with stability and efficiency, are important policy objectives of the financial system.
‘The Murray Inquiry’s interim report states that unfair outcomes discourage consumer participation and ultimately economic efficiency. This is a very welcome statement, and we agree that fairness builds confidence and trust in the financial system’, said Consumer Action Law Centre CEO, Gerard Brody.
In its submission to the inquiry, Consumer Action Law Centre called for an unfair trading prohibition to enhance the financial system. It pointed to business models that target low-income or vulnerable consumers, such as payday lending, motor vehicle or household leasing, consumer credit insurance and funeral insurance.
‘There are a number of business models that, through their marketing, sales techniques, contract terms and customer service, appear to be designed to exploit consumer vulnerabilities, such as having a low income or experiencing financial troubles’, said Mr Brody. ‘A single prohibition to outlaw unfair trading would respond to the Murray inquiry’s finding that the financial system should promote fairness and efficiency’.
Consumer Action also welcomed the interim report’s acknowledgement that reliance on disclosure, or “buyer beware”, as a key consumer protection is insufficient.
‘We agree that much of the current disclosure regime produces complex and lengthy documents that don’t enhance consumer understanding of financial products and services’, said Mr Brody.
‘Disclosure has its place and can work where it is simple, clear and relevant. Disclosure should clearly warn consumers about key product attributes and risks, and provide information based on how consumers use financial products.
‘The introduction of disclosures on credit card statements informing how long it will take to repay a credit card when paying only the minimum balance has coincided with improved repayment rates.[i] This suggests clear, simple and relevant disclosure works, and could be extended to other areas. For example, rather than informing consumers that a late repayment fee is charged, disclosure could more usefully state how likely individuals will be charged the fee, based on their transaction history’, said Mr Brody.
Consumer Action also welcomed the interim report’s focus on competition in banking and payment systems, as well as role clarity and more stable resourcing for regulators.
‘The Australian Securities and Investments Commission does a good job, but needs sufficient resourcing, ideally from industry levies, to undertake robust compliance and enforcement. It also needs to be active in conducting research to understand the marketplace, and have powers to investigate the effectiveness of competition in areas like banking and payment systems.
‘The interim report states that government interventions in markets should be considered on a case-by-case basis. If the regulator had market study powers to publicly investigate competition and consumer outcomes in a market, governments would have more intelligence about when to intervene’, said Mr Brody.
Consumer Action Law Centre’s submission to the Financial Systems Inquiry can be accessed here.
[i] Since these reforms were enacted, the overall level of credit card balances that are interest bearing has stabilised and reduced (at around $35 billion) after virtually uninterrupted growth previously. Credit limits, by contrast, have continued to increase (raising $8 billion to $142 billion between January 2012 and January 2014. Source: Reserve Bank of Australia, Credit and Charge Card Statistics – C1, available at: http://www.rba.gov.au/statistics/tables/index.html.