SUBJECTS: Cabinet reshuffle, Launch of National Consumer Credit Law, unfair mortgage exit fees
PENNY JOHNSTON:
Mr Bowen, good afternoon.
CHRIS BOWEN:
Good afternoon, Penny.
JOHNSTON:
Are you still Finance Minister, Financial Services Minister?
BOWEN:
Financial Services Minister; yes, I am, happily, still in the job, yes.
JOHNSTON:
Okay, because Lindsay Tanner's Finance Minister, isn't he?
BOWEN:
That's right, that's right. They're entirely different roles.
JOHNSTON:
Is he sticking with the job?
BOWEN:
Yes, he is staying on as Finance Minister until the election.
JOHNSTON:
Okay, alright. So your responsibility encompasses this bank switching fees?
BOWEN:
Yes.
JOHNSTON:
Okay, and tell me two-and-a-half years is a bit of time to get something like this changed, isn't it?
BOWEN:
Well, this is something we started working on very quickly after we came to office, and this is something people have been talking about for decades, frankly, and it's been very hard to do, and that's a national system of consumer credit law. By sitting down with the states and territories, working it through cooperatively, consulting with the financial services industry and, importantly, consumer groups, we've been able to get there, and then we needed to give banks and financial institutions some time to adjust to the new arrangements.
So it's something we started working on in December 2007. It comes into play on Thursday, on 1 July, and we'll have for the first time a national consumer credit law, and as part of that we'll be giving ASIC the power to deal with unfair contract terms in financial services contracts including mortgages and particularly in relation to high exit fees. So when you try and change your mortgage, break your mortgage, you find a very high fee and we want to deal with those.
JOHNSTON:
Well, one of the reasons I'm quite interested is I've just got a letter from my bank saying, 'Since you're changing, thanks very much, we'll have $3,000 if you don't mind, Penny.'
BOWEN:
Yes, yeah, and it's a big problem in two respects: one, because $3,000 is better off in your pocket; and secondly, it's a big disincentive to change. So people are encouraged to look around, find a cheaper mortgage rate. People do that and then they go and look at how much it's going to cost to break their mortgage and find it can be very expensive, and that's anti competitive. I want people being able to switch their mortgages as easily as possible so that there is enough pressure in the market to put downward pressure on rates.
And what we'll do, and what ASIC will do, is examine these fees and see if they're fair in relation to bank costs. Nobody's got a problem – it's not just banks of course, particularly, it's not just banks, it's other mortgage providers as well – but nobody's got a problem with financial service providers recouping their costs through these types of fees but where they're unfair, they're so high that it could be classed as gouging and it's uncompetitive, then that's when ASIC would be taking action.
JOHNSTON:
Now I've heard that it's not going to help me because it's only for new mortgages?
BOWEN:
The unfair contracts provision only applies to new mortgages. It would have been probably unconstitutional to apply it to existing mortgages; that was the strong advice we received. There is an unconscionable clause which applies to existing mortgages, but the unfair clause which was the primary mechanism for dealing with exit fees would only apply to new mortgages.
But I do expect some behavioural change. I do expect banks and financial service providers generally, with the increased attention to this from ASIC, to be changing their behaviour, not just on new mortgages, but that may take longer and that is less certain. But certainly for new mortgages, these unfair and high exit fees will need to go.
JOHNSTON:
Now, I mean, $3,000; you're talking to someone who rides a bike home in the rain to save on public transport costs. So, you know, it's a heck of a lot of money.
BOWEN:
Yes.
JOHNSTON:
AndI've heard a great statistic that apparently Australian men change spouses more frequently then they change banks.
BOWEN:
Well, I'm not sure if that's true but the principle probably holds.
JOHNSTON:
Yes.
BOWEN:
People don't do it very often. And look, the account switching package which we announced earlier in our term was designed to make it as easy as possible to get banks to provide you with as much information as possible to make the account switching as easy as possible. This is actually done with a financial cost, which is just as big, if not a bigger disincentive to changing.
JOHNSTON:
Yeah, but you know, they're going to make it easy, you've just got to pay them $5,000, thanks very much.
BOWEN:
Yeah, well, that's why we want to get those fees right down.
JOHNSTON:
Now, last time when bank fees were mentioned – and I don't know if it's sort of still going, that whole class action on unfair bank fees which was, you know, overdue, overdrawn, overdue, blah, blah, you know – NAB refunded all their fees, like that, before anybody set a toenail in court. You know, can us mortgagees that are sort of going to get slugged, can we expect some sort of retrospective action?
BOWEN:
Well, I think certainly the introduction of the unfair contracts term provision in financial services contracts has seen behavioural change in terms of banks, and NAB has been very proactive in reducing their fees going forward. The class action is separate. That is something that a private firm is undertaking. That's separate to anything the Government's doing.
But I do think you do see some behavioural change. I'm not going to raise people's expectations overly, but you do see this having some sort of an impact. We want good, strong, profitable banks but with fair practices, and it's not just in relation to banks, as I must stress. Some of the highest exit fees are non-bank lenders as well. Some of the lowest are credit unions, and building societies are still around. So it just pays to have a look around and to carefully check the exit fees when entering into a mortgage, and if you do have some concerns that it may be too high or unfair then certainly contact ASIC because from Thursday they will have the power to take action.
JOHNSTON:
Alright, okay. Well, we are about to speak to the Consumer Action Law Centre from here in Victoria. Are they going to say that you haven't had enough teeth with this legislation?
BOWEN:
Well, they've been pretty happy with it from my discussions with them, and they've welcomed it, and we worked closely with them on it. Of course, there are always some people who say this goes too far; this goes not far enough. But we have a good relationship with them and we've certainly taken on board their concerns as we've gone.
And Thursday is a really substantial day, as I say. These reforms – two reforms really: one national consumer affairs law and one national credit law – have been 20, 30 years in the making; people calling for this for a long time. Because, you know, if you live in the western suburbs of Sydney, you deserve the same rights as somebody who lives in the suburbs of Melbourne, or somebody in Perth or Darwin. So it makes no sense to have different laws across the country in these things anymore.
JOHNSTON:
Yes, unless you were afforded more protection under one law and you're about to lose it.
BOWEN:
Well, no, we've, as a part of the harmonisation of these, adopted the best practice of states and territories as we've gone and tried to pick up the best bits of the law as we've gone, and improved it and modernised it as we've done.
JOHNSTON:
Terrific. Okay, well, thank you very much Minister.
And look, you can't really look forward to too many new faces in Cabinet really, can you?
BOWEN:
Well, there's a period of stability, and the Prime Minister clearly has us all focusing on the job at hand and didn't want to destabilise by further changes.
JOHNSTON:
Okay. Well, thank you for your time this afternoon.
BOWEN:
Good on you.