DELANEY:
Parliamentary Secretary to the Treasurer, David Bradbury, good morning.
BRADBURY:
Good morning Leon, how are you.
DELANEY:
Well thanks, how are you today?
BRADBURY:
Yeah, well thanks.
DELANEY:
That's the way. The Federal Government's banking package announced yesterday by the Treasurer, along with yourself and Bill Shorten, has identified a number of measures that the Government intends to introduce, but I guess the one that's attracted a lot of attention is the discussion about mortgage exit fees. Now, the Treasurer is telling us that this reform package will help to bring down interest rates – how actually will that be achieved?
BRADBURY:
Well, look, I think you have to take the package in its totality to understand how this will put downward pressure on interest rates. It's important to note, is that going to happen overnight? Well, no it's not going to happen overnight but it's about ensuring we have a competitive banking system, and through that competition, over time, in the same way we saw through the 80s, the 90s and into the earlier parts of this century, we saw that a competitive market is what will drive prices down and will give better services and a better range of services for consumers. But, in terms of how we intend to do that, the package has three separate streams.
Firstly it's about empowering consumers, and there's two elements to that. It's partly about giving consumers the information they need in order to be able to find the banking services that best suit them, but secondly it's about ensuring we lower the barriers to people switching between banks and various institutions.
The second stream of the package is about supporting the smaller lenders. They are an important part of the competitive landscape. We need small lenders out there to be supported so that they can compete with the big banks in the same way as they did prior to the global financial crisis.
And then the third stream is about ensuring that we have a secure and safe banking system into the long term.
These three elements, and there are many measures contained within them, really go to the key challenges we are facing in the banking sector.
I know you raised the issue of exit fees. It's important to understand that there are two phases to our approach on exit fees. The first one, which is already in place, we said that through our new unfair contract terms legislation that we would give ASIC the power to knock out terms in mortgage agreements where they were unfair. ASIC has released some guidelines in relation to that, and in fact we saw around the same time as ASIC released those guidelines two of the major banks backed down and dropped the exit fees that they had previously been charging.
Now, those rules continue to apply for all mortgage-holders, whether they are currently locked into a mortgage or not. And that goes to the question of the unfairness of the term. What we say is, we want to go one step further, and the reason we want to do that, and ban these exit fees, is we think that, of their nature, they are inherently anti-competitive.
There are very few products out there in the market place where you find yourself in a situation where you're actually locked in to the provider of those goods and services in the same way as you are with mortgage exit fees.
DELANEY:
If I could just interrupt there for a moment, there are some examples where you are locked in. You buy a mobile phone on a contract, you're locked in for two years. You sign up to an energy provider, you might be locked into a 12- or 24-month contract for that. There are examples of being locked into a contract for a period of time, and if you terminate the contract early there's some sort of penalty that applies.
Now, with only the limited amount of time that we have today, the issue that's been raised, in particular by the Mortgage and Finance Association of Australia, and I'll quote from Phil Naylor's press release, our biggest concern is that by ending deferred establishment fees, non-bank lenders are unable to compete with banks. Now that is simply not good for non-bank lenders, competition or consumers.
The point about exit fees is that there are a variety of different kinds of exit fees, aren't there? There was a variation where somebody might be signed up for a honeymoon rate loan, but one of the terms and conditions of that was that you would enjoy the benefit of that discounted rate for 12 months on the condition you remained a customer for three years, for example, and if you broke those terms there would be a penalty payment, or the payment of a deferred establishment fee because you had not paid a fee up front. Those sorts of conditions would appear to be made impossible by your reforms. Is that the case?
BRADBURY:
Well look, there is nothing to stop a lender from providing various forms of accommodation through the course of a loan in order to entice someone into their particular product, but if they intend to do that by charging exit fees, provided we get the legislation through and that's certainly our intention, from the first of July next year they will not be able to impose exit fees.
Now I think it's important that there is still a wide range of areas within the mortgage agreement that various competitors can provide competitive advantages to their consumers by structuring their products in various ways. But we say these exit fees, they stop people from having the ability to take their business down the street to another bank or another institution and in the end that is the most significant power a consumer has, the ability to take their business elsewhere. If you don't have that ability, then we believe that takes away from the competitive dynamics within the market. We believe it's essential that we ensure that we take away those less-transparent, hidden back-loaded fees which lock customers in from being able to move from product to product and institution to institution.
DELANEY:
And one of those other impediments was the requirement for mortgage insurance in certain circumstances. You've made a change there too, haven't you?
BRADBURY:
Yes, we're investigating the way in which we might be able to relieve borrowers of the obligation of having to enter into separate mortgage insurance arrangements every time they transfer or they discharge a mortgage and take out a mortgage with a new institution. We are looking at the ways in which you can make this happen in a technical and logistical sense, but we don't think that it is appropriate that consumers be slugged with two sets of those fees when they have discharged the mortgage ahead of time and moved on and taken out a new mortgage with a new institution. That is clearly a further barrier to people being able to switch, and in the end, like I said before, we think that all of us as consumers, in order to get competition in the banking sector, we need to exercise our right to take our business elsewhere if we find a better deal.
DELANEY:
And for the purposes of making it easier to switch banks altogether, you're also examining what might be described as portable bank account numbers. Now what you've decided to do there is essentially to set up an inquiry to see if it's feasible. Do you anticipate that such a portable bank account numbering system will be feasible and will be introduced?
BRADBURY:
Look, it's not been done anywhere else in the world, and by the way that's not a reason to say we can't do it, but I think this is an important step forward. For years the banks have come forward and said, no you can't do it because it'll take too long and it'll cost too much, but no one's really every undertaken a detailed feasibility to study to work out whether or not that is the case. I do believe that if it were possible and it could be done, to move towards a system of full bank account portability, I think that would be one of the most significant structural reforms in opening up competition into the banking sector that we've seen for a very long time. The question remains whether it's feasible, whether it's possible, and that's why we've charged Bernie Fraser with the responsibility of steering through that process to get to the bottom of the truth of the matter on these issues.
DELANEY:
Indeed. There's more to the package but we're out of time, thanks very much for your time today.
BRADBURY:
Thanks very much Leon.