Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

Westpac Bank made a profit of $6.4 billion; the Commonwealth Bank, $5.7 billion; the NAB, $4.2 billion; and the ANZ Bank, $4.5 billion. That is $21 billion in profit after tax made by the big four banks, $21 billion in profit made on the back of the worst global recession the world has seen since the Great Depression and $21 billion in profit made while the government continues to provide some guarantees to the banks first provided during the global financial crisis. Enough is enough. The Australian taxpayer backed the banks through the GFC and now it is time the banks gave something back. It is time we put in place adequate regulation to ensure real competition and consumer choice and it is time that we stopped the banks profiteering at the expense of their customers.

Over the last few weeks, we have heard a lot of strong language about the banks from the opposition and the government. We have heard how the banks had ‘kicked sand in the face of the government’ and how the banks were ripping off the Australian people. The Greens too have been critical of the banks. The difference is, however, that we Greens have a concrete proposal for action. This bill I am introducing today is an opportunity for this parliament to take action. I urge the opposition and the government to take this opportunity in both hands and work with the Greens to ensure its passage through the House.

Banking is now an essential service and unless banks are properly regulated they will take unfair advantage of the need for that essential service. It is with this principle in mind that I introduce the Greens bill, the Banking Amendment (Delivering Essential Financial Services) Bill 2010. This bill will ensure that, whatever other reforms may occur, Australians will have access to basic banking services, including minimising or removing fees from basic services and ensuring mortgage arrangements are transparent and fair for consumers.

The nature of banking services—the kinds of financial products that are offered and the fees that are charged—has a very broad impact on consumers. This bill is necessary because the rights of consumers should be protected by law and not by the self-regulation of the banking industry.

Banks enjoy a position of overwhelming market dominance in Australia, with around 90 per cent of the national market in loans and advances. This kind of market power leaves them free to charge their customers a range of fees that often bear little relationship to the actual or reasonable costs of providing banking services. These sorts of practices have resulted in ever-increasing profits for banks at the expense of their customers.

Australians are spending more on bank fees every year; the Australia Institute puts the figure at around $30 per week for the average person earning around $50,000. Requiring banks to offer basic accounts, in the face of such monumental profit, is a measured and reasonable step for parliament to take.

The first measure that this bill takes is to regulate ATM fees. The bill prohibits banks from charging their own customers for ATM transactions, locking in current practice. It also caps the charge for using another bank’s ATMs at a level sufficient to cover the cost to the bank of the transaction. The most common fee charged for foreign ATM transactions is around $2, yet in 2007 the Reserve Bank of Australia estimated that the average cost to banks for ATM transactions is 75c—less than 40 per cent of the fee they levy upon consumers. The rest is pure profit for the banks. Australians are the second highest per capita ATM users in the world, so the profits the banks make through this premium on ATM transactions are significant.

ATM fees have a disproportionate impact on poorer people, who are more likely to withdraw smaller sums and therefore pay a greater proportion of each withdrawal—and indeed of their income—in ATM fees. The bill’s restrictions on charges for ATM use would address this problem, while still permitting banks to break even on the cost incurred when non-customers use their ATMs.

The bill’s proposed basic transaction account offers banking customers an easy to understand account that provides essential banking services without any hidden profiteering in the form of exploitative fees. It is similar to the accounts some banks choose to offer to low income customers at present, but it will ensure that such accounts offer the same minimum features and are available to all customers of all banks. This represents a return to a simpler banking model where banks benefit from the use of their customers’ money, and in exchange they keep the funds secure and offer the customer secure and convenient access. The only fees that may be levied will be for breaches of contract that the account holder is personally responsible for, and these fees will be purely to recover the cost to the bank of the breach.

It is time for action on interest rates. The bill introduces a requirement that authorised deposit-taking institutions—ADIs—offer ‘fixed interest gap’ mortgages and loans with interest rates fixed at a negotiated percentage above the lender’s cost of funds. The ADI’s cost of funds will be calculated according to a formula approved by the Australian Prudential Regulation Authority. These loans will protect customers from interest rate fluctuations that are not genuinely caused by changes to the ADI’s cost of funds. In the past, there have been occasions where the RBA has lifted interest rates and the banks have lifted their interest rates even higher. If the ADIs were only passing on increases to their costs, their interest rate rises would be lower than those of the RBA, as a third of their borrowing is done in overseas markets that are unaffected by RBA interest rate hikes. These additional increases would not be possible with fixed interest gap loans. By keeping the lender’s margin on the loan constant, and faithfully passing on changes to the lender’s costs under the supervision of an independent authority, these loans will offer customers greater transparency and reassurance by behaving as customers expect variable rate loans to behave

Finally, the bill limits mortgage and loan exit fees to the actual and reasonable costs of early repayment and obliges lenders to make consumers aware of the existence and amount of these fees up front. The existence of exit fees must be mentioned in advertising, and they must routinely be included in the mortgage/loan contract under the uniform heading ‘early repayment charges’. Exit fees are presently disclosed in the fine print of mortgage contracts, but this measure will ensure that they can be identified much more easily. They must be given as a dollar amount for variable rate loans, and a plain language explanation of how the fee will be calculated for fixed rate loans—as it is not possible to anticipate the cost of early termination for these loans. These changes would introduce greater transparency to the lending market and remove a significant barrier to greater competition.

In 2008, the Australian Securities and Investments Commission observed that ‘some [exit fees] do not appear to be related to the underlying costs they are purporting to recover’ and ‘the size of these fees might now present a barrier to switching loans’. The fact that many lenders waive exit fees after three or four years does not assist in most cases, as ASIC observed that ‘the average Australian mortgage is terminated or refinanced within approximately three years’. The changes made by the bill reduce this barrier to switching loans and make it easier for unhappy customers to take their business elsewhere, pressuring lenders to offer consumers a better deal or risk losing their business. I welcome moves from certain banks in recent weeks to move towards this system; but, again, it should be law, not self-regulation, that sees an end to unfairly high exit fees.

The provisions of this bill will not prevent banks from offering a range of other financial products. They simply ensure that banking customers also have access to basic, essential, transparent banking services on fair and reasonable terms. The Greens will seek to pursue other measures in the coming period including a two-year freeze on interest rate rises beyond that announced by the Reserve Bank and a requirement for the banks to deliver any interest rate cuts as well. We will also positively examine other proposals that come before the parliament.

In the meantime this bill is an important start on reining in the banks and an opportunity for those who have spoken so loudly in recent weeks to put their money where their mouth is. I commend the bill to the House.

Bill read a first time.

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

In accordance with standing order 41(c), the second reading will be made an order of the day for the next sitting.