New ASIC reforms designed to crack down on “unfair” banking fees for loans were a start. But the real reform says Frank Zumbo, law expert and University of New South Wales professor, needs to be introduced so businesses and individuals have the opportunity to switch banks quickly should the need arise.
Documents obtained under freedom of information laws reveal the Government’s bank-switching strategy has failed to attract widespread attention and only a minimal amount of customers have used the service.
The revelation has prompted Zumbo to call for more banking regulation and reform, which would allow both individuals and consumers to change banks quickly and easily.
The documents, published by the Sunday Age, also come after the Government has promised to put pressure on the banking industry regarding unfair fees and charges.
The documents reportedly reveal the findings of an internal ASIC survey, which found 40% of 1,207 respondents couldn’t be bothered switching banks because of the hassle, 10% said there was no point changing because all banks are the same and 10% found switching too hard a process.
Only 23% of respondents claimed they were happy with their current financial institution.
A number of briefings to treasurer Wayne Swan included in the documents show reform could be warranted, similar to reform in the telco sector, that would allow users to keep their bank account details when switching.
However, it also noted that due to “complex technical and legal issues”, these reforms are still years away from being completed.
The original bank-switching package was announced back in 2008. It was designed so customers could switch banks and provide the old bank with a list of debits and credits to be taken to a new financial institution.
However, new briefings show that the “awareness and take-up of the service by consumers appear to be low”. This is mainly due to a lack of promotion, with just 1,818 bank switching requests lodged in the year to December 2009.
The documents also reveal a bank switching hotline to monitor complains only received an average of two calls per week in a 21 month period.
Zumbo says real reform needs to be introduced so businesses and individuals have the opportunity to switch banks quickly.
“The most disappointing thing is that these reforms come after a number of failures from the government. The delivery has been disappointing, the promotion has been disappointing and it’s ultimately a gimmick.”
“Changing from bank to bank means you should just be able to slip your name on a form and then that’s all, bank X deals with bank Y and that’s all that should happen. This happens in the telco and energy industries, and it should happen in banking as well.”
Zumbo says that for businesses wanting to escape unfair fees and costs, it is essential that switching institutions remains a relatively easy task. The more complex a customer’s accounts, he says, the more complex that transition is likely to become.
“If you go to a bank you have to establish your identity, especially if you have several accounts, credit cards and so on. You might have different insurance products that need to be detailed, and these are complex, especially for businesses.”
“The other problem is a lack of competition in the sector. The four major banks have really copied each other in a lot of aspects and that’s what makes changing so difficult.”
Zumbo also says businesses are suffering under a number of different fees and charges, and these need to be abolished before any real reform can be made. He says ASIC’s new powers are just a start.
“The fees backs have eliminated so far are just tokens, there are a lot more they can get rid of. Consumer transaction fees should be challenged by the regulators, and businesses need to have a lot of these fees abolished as well.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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