MADONNA KING:
Nick Sherry is the Assistant Treasurer good morning.
NICK SHERRY:
Good morning Madonna and good morning to your listeners.
KING:
Now can I just ask you, Wayne Swan has been fairly strong in referring to Westpac as a serial offender when it comes to taking customers for a ride. Do you agree with his assessment?
NICK SHERRY:
Well I do and I look at the latest behaviour of Westpac, which is to charge interest on interest. I mean that has been the latest announcement and I notice Westpac say it doesn't make a lot of difference in terms of what they gain from it, which begs to me the question: why would you do it in the first place? If introducing interest on interest on your credit cards is not going to raise a lot of money, the bank itself must know that there is a lot of scrutiny of fees, particularly in this area at this time, why would you do it? I just think it's very unfortunate. I mean in the case of credit cards in particular, there is a highly competitive market. I think there are a hundred different credit card providers in Australia and people will switch. And if they are not happy with that policy announced by Westpac, they can switch credit card providers and it's relatively easy to do that.
KING:
Senator isn't it a fact that the banks just aren't listening to the Government? I mean each time this happens the Government comes out with stern faces and says we are warning banks not to do this, this is not the spirit, you know this is much higher than what the Reserve Bank has said, but the banks go ahead and do it anyway.
NICK SHERRY:
Well, we don't control banks directly and we don't control their policy directly, but what we can do and in the case of credit cards there are many different credit card providers and if a financial institution like Westpac takes it upon itself to introduce a new policy like interest on interest as they have done, then there will be significant public criticism, then people will switch.
KING:
All right, but what about this idea that they are thinking about raising their interest rates as much as they want, as often as they want and ignore the Reserve Bank?
NICK SHERRY:
Well markets don't work like that. I mean, if a bank turned around tomorrow and just jacks up rates there is a competitive response.
KING:
There is a competitive response, but the history appears to be if one bank does something then everyone else follows.
NICK SHERRY:
Well that is certainly not the case if you look at the last year when we have seen the cash rate move up from 3 to 4%. Not all banks, there is a fair focus on the four major banks, but I have to say not all four banks responded in the same way.
KING:
So what's the point of having a Reserve Bank if the commercial lenders will go their own way anyway, as Westpac seems to be signalling this morning?
NICK SHERRY:
Well Westpac has adopted a set of policies and there has been a set of criticism and I think, rightly, criticism of some of its behaviour. But you see what people will do is you look at other products and the costs and the interest rate policy of other, not just the other big four, but other financial institutions. There is a considerable range and people in a competitive market on top of that of course in the past the market has not acted as competitively as it could have done, that's why we have introduced much tougher consumer protection laws which will apply to financial products including excessive exit fees which make it harder for people to switch, they are being introduced this year so …
KING:
Well all right, what is the responsibility of banks to do the right thing by their customers, what would you say on that?
NICK SHERRY:
Well I think there is an important responsibility to the broader community, it's not just to their shareholders and I think it is in their best interest to carefully consider, as they should have done in this latest example. If the argument is they are going to change and introduce interest on interest on credit cards and it makes only a small difference to their bottom line, then why would you do it in the first place. And secondly, doing something which is quite controversial, it inevitably was going to make the media, where was the judgement then? Westpac has been widely criticised in recent months, people will switch I have got no doubt, I have spoken to other banks and other credit unions and building societies and people are switching.
KING:
Well, we will wait and see what happens, Senator Nick Sherry thank you.
NICK SHERRY:
Thank you Madonna.