Consumer advocates have accused the big banks of cutting corners in their response to the banking royal commission, arguing “systemic and cultural problems” still affect the scandal-plagued sector.
In an extensive and scathing joint submission published on Wednesday, 15 consumer groups said key lessons from the royal commission had been ignored and an urgent overhaul of banking regulation was needed.
The royal commission called for staff salaries to be detached from sales performance and for banks to stop signing up customers to unaffordable credit cards, among other things.
But advocates argue these changes never took place and horror stories of banks pushing people to despair with loan repayments – as exposed by the royal commission – are still playing out years later.
“These issues continue to result in significant harm to consumers, most often impacting those who are more vulnerable,” the advocates said.
“There still appears to be systemic and cultural problems within banks that are not being recognised as such.”
The submission was led by the Consumer Federation of Australia and made more than 100 recommendations for changing the banking code of practice – a set of industry regulations that govern big bank conduct.
The code is currently being reviewed and is in a consultation phase.
Consumer groups report consumer suffering
The Australian Banking Association (ABA), which administers the code, has claimed banks have honoured royal commission recommendations.
But consumer groups have found ongoing cases of banks doing wrong by their customers – even during the COVID-19 crisis last year.
“The ABA and its members are now looking to cut corners on some of these recommendations, or depart from some altogether,” they claimed.
Advocates said one customer, Silvia (not her real name), went into a bank in Melbourne during 2020 to obtain a new loan against her home.
Silvia lives off pension payments and has struggled to pay her bills, but was nevertheless handed a $25,000 loan by one of the big four banks.
It was $5000 more than she had asked for, requiring repayments totalling about 14 per cent of her income each fortnight, advocates said.
“While Silvia managed to make the repayments, the loan was causing her a great deal of stress,” the Consumer Federation told the review.
“She has attempted suicide because of stress.”
Royal commission ignored
It comes after the major banks and the Morrison government pushed for a rollback of responsible lending laws that consumer groups argue runs counter to the very first recommendation of the royal commission.
Separate reporting has found many royal commission recommendations have been delayed or pushed to the side since the pandemic started.
And in the submission led by the Consumer Federation of Australia, advocates argued banks haven’t put enough effort into dealing with another key finding from the commission.
They said it remains unclear whether the banks have introduced fixed salary structures to avoid staff being encouraged to take actions that boost their earnings at the expense of their customers.
A recent Finance Sector Union survey found many staff don’t believe there have been substantial changes to their pay structures.
“There has been limited progress by the banking industry to capture data correlated with good consumer outcomes,” the advocates said.
“Banks need to develop measures of customer outcomes, not just customer satisfaction or advocacy.
“This sort of data is necessary to determine whether remuneration practices are or are not contributing to customer outcomes.”
The consumer groups want a new enforceable provision in the banking code that would prevent banks from basing salaries solely on sales performance.
They also called for banks to stop using a credit exemption that allows partner businesses to sign up customers to credit products despite not having a licence.
The royal commission called on the government to abolish the rule after it was linked to customers being signed up for unaffordable loans.
But advocates worry the government is dragging its feet and want banks to agree to stop using the exemption under the revised banking code.
“Consumer representatives continue to assist consumers who have been signed up to inappropriate personal loans and credit cards that they were never able to afford,” consumer groups argued.
“These issues are particularly common in car yards and appliance stores, including some of Australia’s largest brands.”
Consumer groups have also called on the banks to be more proactive in ensuring debt collectors do not harm their customers, and to stop forcing guarantors out of their houses when third parties default on their loans.
Buy now, pay later
Advocates are also trying to ensure the banking code keeps up with the times, calling on the review to implement new buy now, pay later rules.
Buy now, pay later has become a gold rush for the banks as customers ditch traditional credit cards in favour of low-interest options.
But these loans are not regulated under consumer credit protection law, which means companies like Afterpay are not required to conduct credit checks when lending to shoppers.
Although the larger banks conduct credit checks on their BNPL products, this is isn’t currently required under law or the banking code.
“We are concerned that by seeing a bank associated with these products, consumers will assume the products are safer and more trustworthy,” advocates said.
“This leaves more reason to have safeguards in place with products that are associated with banks, than in the wider market.”
Consumer groups want BNPL to be embedded in the banking code through a rule that would treat it as though it was regulated under credit laws.
The banking code review is being undertaken by public service veteran Mike Callaghan and will be finalised by the end of November.
A full list of the consumer federation’s recommendations can be accessed here.
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