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Banks under fire for irresponsible lending -

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Banks under fire for irresponsible lending

The World Today - Wednesday, 17 December , 2008 12:44:00

Reporter: Simon Santow

ELEANOR HALL: They may have fared better than some of their international counterparts but a review
of Australian banks has found they're continuing to engage in bad lending practices.

The review was commissioned by the banking sector and it has found that, despite the credit crunch,
banks are continuing to write loans that are irresponsible.

Banks say they'll take the recommendations seriously, but they insist there's nothing fundamentally
wrong with the way that they do business.

Simon Santow has our report.

SIMON SANTOW: Jan McClelland says the year-long review process was a good opportunity to look at
what banks do well and at the same time it helped identify the problem areas.

JAN MCCLELLAND: I'm suggesting that the code include a key commitment to responsible lending, and
I'm also suggesting that there be stronger provisions in the code in relation to approval of credit
and also the making of unsolicited offers of credit limit increases to customers.

SIMON SANTOW: The Australian Bankers' Association may have paid for the review, but chief
executive, David Bell, isn't so sure about this particular finding.

DAVID BELL: No institution in the world is perfect, and banks are certainly not perfect. But having
said that, the evidence is on the board, banks in Australia are responsible lenders, and the
evidence of this is that the levels of defaults on our loans are very, very low.

And more broadly, if you compare our banking system with the rest of the world, we're in fine
shape. And the reason for that is because we are good and responsible lenders.

SIMON SANTOW: David Bell says the non-bank lenders are much less rigorous about who they lend money
to and give the industry as a whole a bad name.

DAVID BELL: The evidence from a whole range of sources shows that default levels, the levels of
delinquent loans, if you compare the banking sector to the non-APRA(Australian Prudential
Regulation Authority) regulated sector, there is a dramatic difference which shows the fact that
banks are good and responsible lenders.

SIMON SANTOW: Are you seeing a flight towards banks in these times? Are you seeing more customers
coming back from the non-bank sector?

DAVID BELL: Look, I haven't got those exact figures to hand, but I have seen information, or
evidence that shows people are, are if you like, moving towards banks. I guess you can understand
that, because we are strong and safe institutions and we are good lenders.

SIMON SANTOW: The review takes aim at a growing cash cow for banks, the so called exception fees.
Fees charged for everything from overdrawn accounts to dishonoured cheques.

JAN MCCLELLAND: I have made recommendations that there be full disclosure of such fees in material
that's provided by banks. But also that customers be advised of accounts which have low or no
exception fees.

SIMON SANTOW: Christopher Zinn is from consumer advocate group Choice.

CHRISTOPHER ZINN: Basically, all they're being pushed to do now is give full disclosure of the
fees, we'd argue that there is still a role actually for a challenge; legally are these fees
actually fair? We would argue not.

As far as we're concerned it's not just a question of disclosure, it's really a question of
notifying consumers that they're going to be hit with these fees and giving them the very real
option to avoid them.

At present that really doesn't exist, there are one or two banks that will send you an SMS if
you're about to overdraw an account, or do something that might expose you to a penalty fee, that's
right, the technology allows that.

But, many of the other banks are really dragging their feet. So, we think there's far more scope
for them to give people due warning that they might cop a fee like this.

SIMON SANTOW: It's a criticism the banks won't wear.

David Bell from the Bankers' Association.

DAVID BELL: Banks in Australia have taken steps to offer exception fee-free accounts, they have
reduced or got rid of exception fees, and our argument has always been is that the market should be
allowed to work.

It has worked, there is competition there, and these fees are coming down. We have listened to what
the community has said.

SIMON SANTOW: Choice says it's still receiving complaints from bank customers upset about being
bombarded with offers for increased credit.

Christopher Zinn, again.

CHRISTOPHER ZINN: We've heard stories just in the past few months of teenagers being sent
inducements to increase their credit limit up to, from five or $6,000, up to 10 or $12,000. So, one
would wonder about the due diligence which is done in sending out those offers.

ELEANOR HALL: That's Christopher Zinn from Choice speaking to Simon Santow.