Today the Rudd Government is pleased to announce a package of measures to make it easier for Australians to switch banks if they are not satisfied with their current provider.
This shows how determined we are to make the banking system work for Australian families and not against them.
There are currently too many administrative and other obstacles Australians confront if they want to change banks, and we are addressing that.
That's why we have developed these four bank switching initiatives after intensive consultation with regulators, banks, credit unions, building societies and consumer groups, which includes:
- A listing and switching service that requires banks to provide their customers with accurate information on all direct debits and credits to take to a new bank for easier transferral, if they switch. Banks will also be required to assist new customers to re-establish their direct debits and credits;
- One single consumer complaints hotline 1300 300 630 providing a first contact point for all consumer complaints about basic banking products – to be provided and maintained by the Australian Securities and Investments Commission;
- Comprehensive consumer education resources, including a detailed and informative web site providing advice on how to switch, and the costs and benefits of doing so, through the www.understandingmoney.gov.au site; and
- An ASIC-led industry review of entry and exit fees that apply to mortgage accounts, shining a light on fees, putting downward pressure on them, and providing better information to consumers to inform their switching decisions.
Strong competition in the financial services sector is critical to ensuring consumers get the services they want at the lowest possible price.
The Account Switching Package will reduce unnecessary barriers to customers changing providers and increase consumer awareness of financial services products and their costs, and how to go about switching if that is what suits them best.
This will increase competition and enhance the options for consumers, putting downward pressure on prices, and making it easier for families to judge their banks' actions.
I have been working closely with key players including the Australian Bankers' Association (ABA), the Association of Building Societies and Credit Unions (ABACUS) and the Australian Payments Clearing Association (APCA) to get agreement on an account switching support service, and have also consulted the major banks.
Implementation will begin immediately, and all aspects of the switching package will be finalised by November 2008.
This means the listing and switching service will be operational in the coming weeks, in an interim form that involves banks providing written advice and support until IT systems allow full implementation by November 2008.
The Reserve Bank of Australia (RBA) will oversee the Industry initiatives.
We have encouraged Australian families to judge their banks and exercise choice by voting with their feet and changing providers – today we announce the reforms that will make it easier to do just that.
Background Note - Account Switching Package
Strong competition in the financial services sector is critical to ensure consumers get the services they want at the lowest possible price. By being able to "vote with their feet" and change providers, consumers ensure the market provides what they want while forcing down the cost to the lowest possible level.
In order to maximise competition in this sector, it is important consumers have information about products, including their fees, and are able to compare them. Consumers also need to be able to switch providers easily. The proposed package will reduce unnecessary barriers to customers changing providers and increase consumer awareness of banking products and their costs.
Objectives
The Account Switching Package is designed to ensure that consumers can access the benefits of a competitive market in the banking sector and to simplify avenues of redress for consumers in relation to basic banking products. It will:
- smooth the switching process for consumers;
- improve consumers' ability to decide whether they need to switch and how to go about it;
- promote awareness of and access to complaint handling mechanisms; and
- increase information and scrutiny on mortgage exit and early termination fees.
The package
- Listing and switching service to make changing bank easier
- Web based consumer information package to educate people of their options
- Single Consumer Complaints Hotline
- Review of mortgage exit and early termination fees, to shine a light on fees and put downward pressure on them
Listing and switching service
Consumers face administrative barriers to switching their accounts, in particular if their mortgage, transaction account, direct debits and credits are held with the one bank.
The Government is ensuring that industry implements a listing and switching service that makes the process of changing banks much simpler for the consumer.
This will require a customer's existing bank to provide them with a list of the past 13 months of direct debits and credits. A consumer will then be able to go to their new bank and get assistance with switching these transactions to their new account. The new bank will help customers to make the switch including, if requested, making arrangements to re-establish the customer's debit and credit arrangements against the new account.
The Government will ensure banks provide information on how to avoid exception fees, deal fairly with customers throughout the account switching process, and ensure that customers do not incur exception fees for situations out of their control.
Implementation of the switching service would be overseen by the Reserve Bank of Australia (RBA) to ensure Government requirements are met. This service will be operational by November 2008, with interim arrangements in effect before this time.
Consumer Education - Enhance consumer capability
The Government has initiated a consumer education program to ensure consumers can make better decisions regarding switching and can engage in the process in a more informed way.
Consumers will be empowered through a web-based consumer education package through the UnderstandingMoney.gov.au website including:
- information the consumer should consider in determining whether they need to switch;
- a step by step guide to switching;
- possible costs to the consumer; and
- information about fees across banking products.
The website will also promote the consumer complaints hotline.
There is already some starter information for people looking to switch on the Understanding Money website today – www.understandingmoney.gov.au.
Consumer Complaints Hotline
There is currently no single consumer complaints number for consumers. This can create complexity and frustration for consumers.
The Package includes a single consumer complaints hotline 1300 300 630 operated by ASIC. This is for consumers with a complaint about a banking product or service provider, and provides a referral service to the appropriate complaint handling body.
Responsibility for handling consumer complaints regarding basic banking products were split between the Australian Securities and Investments Commission (ASIC) ASIC, the Australian Competition and Consumer Commission (ACCC), State consumer fair trading offices and the Banking and Financial Services Ombudsman (BFSO).
Review entry, exit and early termination fees
The Government has asked ASIC to convene and oversee an industry review of entry, exit and early termination fees. This will help to provide consumers with information on such fees and to compare fees across institutions.
Shining a light on existing fees will help to put downward pressure on fees and help consumers to decide what products meet their needs.
This review follows the industry-based review of penalty fees. Last year, ABA members published information about their policies and products, including how to avoid fees charged for overdrawn, dishonour, excess limit and credit card late payment. Most of the major banks have since announced reductions and exemption to exception fees, particularly for low income-earners and concession card holders.