Banks will need to tell customers when their savings interest rate changes, and the process for switching home loans will be simplified under a new federal government push to help consumers get better deals.
The government will also require banks to offer clearer information about the different types of deposits they offer.
The move follows two banking reviews by consumer watchdog the ACCC, one on savings from 2023 and one on loans from 2020.
Confused customers missing out
Both of those reports found customers were frequently missing out on value for money because banks were “taking advantage” of their confusion.
In the case of savings accounts, the ACCC found customers were most bamboozled by ‘bonus accounts’ offering high interest rates but with tricky conditions for receiving them.
Only 29 per cent of people on such accounts actually receive the bonus rate on a consistent basis.
And when it comes to loans, the ACCC found almost half of all mortgage holders had not switched providers or refinanced within the last four years, partly because they were confused about how to do it or were put off by the up-front costs.
That was also causing many to miss out on better value, although that finding was based on 2019 information and might be slightly different in today’s context of higher interest rates.
Modest changes on the way, but ACCC wanted more
On Friday evening, Treasurer Jim Chalmers announced the government would cover off on several of the ACCC’s recommendations.
Banks will be required to notify customers when their rates change on transaction and savings accounts.
And comparison websites will have to disclose any links they have with the banks whose products they are comparing, which the ACCC also recommended.
But other savings-related recommendations have been left alone for now, including the suggestion that banks should actively prompt customers to switch to better rates and should warn them if they are about to breach their bonus rate conditions.
The government has promised to “work with banks” on further customer measures and has flagged “potential” industry standards which could potentially cover off on these or other consumer-friendly measures, but it has not suggested a timeline for this.
On the home loans front, the main change is making it easier to access the forms needed to exit a mortgage.
But the ACCC’s recommendation to require banks to process forms within 10 business days has not been adopted. The ACCC found the switching process typically takes weeks or even months, which can deter switching.
Also missing was the recommendation that banks should send an annual personalised email to customers outlining how they could be getting a better home loan deal.
But the government argues it has gone one better than its predecessor, which did not respond to the review when it landed.
Mr Chalmers said the changes would “make it easier for customers to find the best deals and switch to them.”
Leg up for competitors to big four?
The government has also announced a review of how small- and medium-sized banks could be helped to get a foothold and compete with the big four banks.
The ACCC found the lack of competition in banking was a key reason why confusing deposit conditions and difficult mortgage switching persisted.
The review, to be led by the Council of Financial Regulators in tandem with the ACCC, will consider how regulation could make it easier for small banks to source funding and compete.
Busy competition agenda but timelines unclear
It’s one of a suite of competition-related ideas the government has committed to, but has not yet landed.
Also on that list is a crackdown on mergers, especially in situations when large, dominant businesses gobble up smaller competitors.
The government announced a plan for merger reform earlier this year that would require mergers above a certain threshold to be disclosed.
But as yet there is no bill, and no detail about what the threshold will be, prompting a warning from ACCC Chair Gina Cass-Gottlieb at Senate estimates that the threshold would need to be as low as $35 million to be most effective.
Also on the backburner for now are plans to expand the ‘consumer data right’, which allows customers to share their personal data with third parties to help them find better deals. A bill has been introduced, but the timing is uncertain.
And at estimates last week the government could not put a timeline on its plans to crack down on anti-competitive non-compete clauses.
Finally, there are a series of reviews into supermarket competition, including an ACCC review which is expected to make an interim report in August.
Coalition has its eyes on responsible lending
The Coalition has also hinted it may consider changes to lending laws as part of its election housing offering.
In a recent speech at the Sydney Institute, the Coalition’s assistant housing spokesperson Andrew Bragg suggested prospective first homebuyers were being locked out because financial regulations required banks to be too cautious about offering loans.
He pointed to ‘responsible lending’ laws introduced after the Global Financial Crisis, which were designed to reduce risk in the banking sector by shoring up bank capital.
“Although [this] approach to bank capital arrangements has resulted in reduced risk, it may have also contributed to less growth and fewer first home owners,” he said.
“We can have banks which are both unquestionably strong but easily able to lend to first home buyers.”