Tony Boyd
Bait and switch
Wayne Swan's promise to keep the bank's honest and ensure that there is a “fair dinkum” bank switching package may have overlooked one aspect of the process that is outside his control.
The banks will have the discretion to charge customers an exit fee for moving their accounts to another financial institution.
Right from the start the banks agreed that being able to switch accounts was important for competition. They have been actively involved in the discussions coordinated by the Australian Payments Clearing Association (APCA).
But agreeing to a set of guidelines for switching accounts is one thing. Charging a fee to recover their costs is in keeping with the emphasis on user pays for all aspects of banking.
Fees charged for switching would discourage people to move and undermine the good work done so far. Banks have a track record of imposing contingent fees, which are not captured by disclosure obligations at the point of sale.
A recent examination by ASIC of exit fees charged by banks for switching mortgage providers showed that competition had not deterred banks from imposing onerous fees. For example, one of the big four banks charged a fee of $5,678 for terminating a $250,000 mortgage.
APCA rightly points out that fees charged by financial institutions are beyond the scope of its work and anyway, fees are outside of its control.
If the control of fees was included in the work being done to facilitate account switching, then the ACCC would have had to be involved. That would have added another two years to the process.
APCA is confident of meeting the deadline agreed earlier this year with Swan to have the accounting switching mechanism operational by November 1.
Industry guidelines for account switching will not be publicly released for two months but APCA chief executive Chris Hamilton says the basic outline is pretty much worked out.
Bank switching will be a three step process.
If you decide to move your bank accounts to another financial institution, your old financial institution will be obliged to provide you with all your direct debt and credit arrangements over the past 13 months.
The second step is to open an account at the new financial institution.
You can then choose to either set up all the new direct debit and credit arrangements yourself or you can ask the new financial institution to assist you with your new direct debit and credit arrangements.
The guidelines will impose a five-day deadline for the old financial institution to provide you with the list of direct debit and credit arrangements over the previous 13 months.
Australia's bilateral payments arrangements combined with the system of debit authorisations being held by the biller has led to some complications in formulating a switching package.
Those complications are the reason given why Australia will not be adopting the UK account switching system. Under the UK arrangements the old financial institution will close or move your account free of charge within three working days.
The UK system has the added advantage that customers may keep their account numbers and transport them from bank to bank, facilitating the switch.
The UK also has a centralised clearing house which makes it easier for financial institutions to facilitate switching.
Another complication for APCA is that there may not be 13 months worth of data on direct debits and credits. This information will be compiled by the old and new financial institution over a 13 month transitional period. It will not stop the scheme from starting on November 1.
The big unknown is whether the banks will follow their past practice of demanding a user pays approach to account switching and slug you for wanting to leave.
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