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Senator Xenophon's erroneous claims on bank switching
Sydney, 3 September, 2008: The Australian Bankers’ Association (ABA) has responded to erroneous claims1 made yesterday by Senator Nick Xenophon.
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Senator Xenophon’s claims
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Facts
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Bank switching: “…if you want to switch banks, it’s hard to do that.” |
Thirty per cent of home loan applications each year represent switching borrowers.
The Australian Prudential Regulation Authority, the banking regulator, has observed ‘considerable churn' in housing lending.
Thousands of bank accounts open and close every week. 1
There is considerable refinancing in credit cards as customers switch to honeymoon rate offers.
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UK switching: “I think what we can learn from the UK where it’s much easier, much less costly for people to switch financial institutions.” |
The UK regulator, the Office of Fair Trading (OFT), has recently criticised the UK switching system noting low switching levels.
The OFT found UK consumers were bearing the costs of mistakes in the UK switching process.
A report by the Australian Securities and Investments Commission (ASIC) showed it is more expensive to refinance housing loans in the UK than in Australia.
One of the reasons the UK-style switching system is inappropriate in Australia is that direct debits and credits are established differently. In Australia, merchants (not just banks) can arrange customer direct debits. Merchant involvement has helped grow direct debits. They are highly convenient and very low cost.
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Cost of switching: “…you actually pay a fortune in many cases to switch banks.” |
The ASIC report demonstrated banks did not charge high fees for refinancing housing loans against the following benchmarks: (a) non-bank lenders and (b) comparable overseas banks.
There is no cost to the consumer in opening or closing transaction accounts. |
Switching package
The following key principles have been agreed by banks:
- The old financial institution will provide a list* of the customer’s direct debit and credit arrangements over the past 13 months to the customer in order to facilitate the establishment of the arrangements for the new account;
- The new financial institution will provide the customer with information and support to help the customer make the switch. If requested by the consumer, the new financial institution will assist in notifying the Direct Entry users of the new direct debit and direct credit arrangements and assist with closing the customer’s old bank account;
- The service will be supported by obligations in industry codes of practice. This will include obligations in regards to timeliness and to provide information to customers on how to avoid exception fees, and to deal fairly with customers throughout the account switching process;
- Industry has agreed that the service will be implemented by November 2008. A progress report on the implementation of the switching service will be provided to the Government on a quarterly basis.
Some banks already have interim measures in place before the November implementation deadline.
* At least initially, banks are likely to take different approaches to producing a ‘list’. All approaches must, however, provide the customer with the direct debit and credit details needed to help the customer switch accounts. If specifically requested by the customer, this list must be provided on one page.
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
[1] Claims taken from interview completed at 8.39am on Adelaide radio station 5AA
[2] In some circumstances there is some time and hassle involved in setting up direct debits and credits on a transaction account at the new financial institution. Banks are introducing and promoting switching services which start in November. Interim arrangements now apply. |
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