Customers missed out on higher interest accounts because of “ongoing barriers” to searching for and switching to better deposit offers, the ACCC found, while noting customers often faced mountains of red tape and jargon trying to understand their accounts.
The terms and conditions on some accounts run to 108 pages.
Its 2020 report into the mortgage market highlighted an overly complex system that made it difficult for borrowers to switch to cheaper competitors. It recommended a simplification of the paperwork required to be filled out by customers so they could switch to another lender.
Under the changes, it will be mandatory for banks to tell customers when interest rates change on their transaction and savings accounts. Disclosure requirements on basic deposit accounts will be simplified to make them more understandable.
An industry-wide standard for explaining bonus interest or low-interest rate periods on mortgages may be introduced if banks fail to overhaul their own systems.
The paperwork required to exit a mortgage and shift to a competitor will be overhauled, forcing banks to ensure customers have “direct and easy access” to necessary documentation.
Financial product comparison websites will have to disclose how they rank products, as well as any financial relationships they have with particular banks or financial institutions.
Jim Chalmers believes Australians will be better off with more understandable information from the nation’s largest banks.Credit: Oscar Colman
The ACCC inquiry into home loans, as well as academic studies into consumer behaviour, has revealed many people do not switch to products even if they would be much better off financially.
Treasury will investigate the use of behavioural economics – the way psychology interacts with economic decision-making – to find ways to encourage customers to shift. Behavioural economic insights are already being used in other agencies such as the Australian Tax Office due to growing awareness that most people struggle with complex financial decisions.
Research released last year by the Reserve Bank showed relatively low levels of financial literacy, with many Australians struggling with concepts such as the movement of interest rates, the bank’s inflation target and how the economy operates.
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While the changes are aimed at ordinary banking customers, the government is also launching a review into ways of encouraging small and medium-sized banks to be more competitive against the established four major institutions.
The Council of Financial Regulators, which includes the Reserve Bank, Treasury and the Australian Prudential Regulation Authority, will head the review that will examine regulatory and market trends that may limit competition in the sector.
“It will propose ways to improve regulation and ensure that oversight of these banks appropriately balances competition, innovation, and stability,” Chalmers said.
The review will also examine the source of funding for small banks. Unlike the majors, smaller banks are often reliant on the local and overseas securities markets for their financing.
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