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Tuesday, 15 June 2010
Page: 3248


Senator BOB BROWN (Leader of the Australian Greens) (3:55 PM) —I move:

That this bill be now read a second time.

I seek leave to table an explanatory memorandum relating to the bill.

Leave granted.


Senator BOB BROWN —I table the explanatory memorandum and I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Banking is an essential service. A basic bank account is essential to function properly in present day Australian society. This means that the nature of banking services—the kinds of financial products that are offered and the fees that are charged—has a very broad impact and the rights of consumers should be protected by law and not, as is currently the case, by the self-regulation of the banking industry.

The Banking Amendment (Delivering Essential Financial Services for the Community) Bill 2010 provides legislative protection for banking customers in a number of basic banking services, including minimising or removing fees from basic services and ensuring mortgage arrangements are transparent and fair for consumers.

Banks enjoy a position of overwhelming market dominance in Australia, with around ninety 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.

Last financial year, Australia’s major banks announced massive net profits despite the global financial crisis. For example, the ‘big four’ banks each posted profits between $4.7 billion and $2.6 billion, despite the global financial crisis. At the same time, Fujitsu Consulting estimated that, on average, Australian households pay about $1000 per year on bank fees—roughly 22% more than UK householders and 10% more than the US. The Australia Institute recently calculated that the average person earning around $50k is likely to be paying $28.85 per week toward bank profits.

Recently, consumer organisations have successfully campaigned for a better deal from the banks. The banks have responded to some extent and voluntarily improved their approach to fees in some areas. For example, now most banks do not charge their own customers for the use of another bank’s ATMs, even though it is open to them to do so. Other banks have dropped overdrawn account fees and reduced their other penalty fees. A number of banks have also introduced fee-free or low fee basic accounts for low income customers. These are very welcome changes.

The Banking Amendment (Delivering Essential Financial Services for the Community) Bill 2010 ensures that these changes apply to all banks as a matter of law, and makes further important improvements for the benefit of banking customers.

This Bill delivers fee-free essential banking services and greater competition and transparency in the mortgage market by: requiring banks to offer basic, fee-free transaction accounts to all; making bank ATM transactions free or capped at the cost of service provision; requiring financial institutions to offer a mortgage product that fixes the interest rate at a negotiated margin above the institution’s cost of funds; and by limiting mortgage exit fees to a level that recovers the cost to the lender of the early termination.

The 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. It will provide essential transactions, internet banking, a debit card, freedom from ongoing service fees or unfair penalty fees for the actions of third parties, with other penalty fees capped at a level sufficient to recover the cost to the bank of the penalised conduct. 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.

The Bill prohibits banks from charging their own customers for ATM transactions which effectively just locks in banks’ current practice, and caps the charge for using another bank’s ATMs at a level sufficient to cover the cost to the bank of the transaction. In 2000, the Reserve Bank of Australia calculated that ATM transactions cost banks around 50 cents per transaction, but the fees charged to the consumer were anything up to $2.00 per transaction. Australians are the second highest per capita ATM users in the world, with some 800 million withdrawals made in 2006, so the profits the banks make through this premium on ATM transactions is significant. This has a disproportionate impact on poorer people, as they are more likely to withdraw smaller sums at a time, and the $2.00 charged each time represents a greater share of their income. 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 introduces a requirement that mortgage providers offer ‘fixed interest gap mortgages’ that keep a mortgagee’s interest rate at a fixed percentage (negotiated at the outset of the mortgage) above the lender’s cost of funds. The lender’s cost of funds will be calculated according to a formula approved by the Australian Prudential Regulation Authority. These mortgages will protect customers from interest rate fluctuations that are not genuinely caused by changes to the bank’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 banks 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 for customers on a fixed interest gap mortgage. By keeping the lender’s margin on their mortgage constant, and faithfully passing on changes to the lender’s costs under the supervision of an independent authority, these mortgages will offer customers greater transparency and reassurance by behaving as customers expect variable rate mortgages to behave.

Finally, the Bill limits mortgage exit fees to the actual and reasonable costs of early termination of the mortgage, 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 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 mortgages, and a plain language explanation of how the fee will be calculated for fixed rate mortgages (as it is not possible to anticipate the cost of early termination for these mortgages). These changes would introduce greater transparency to the mortgage 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.

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.

I commend this Bill to the Senate.


Senator BOB BROWN —I seek leave to continue my remarks later.

Leave granted; debate adjourned.