Tony Boyd
Concealed exit
Treasurer Wayne Swan's bid to make it easier for Australians to switch banks is getting down to the nitty gritty, with ASIC this week asking banks to reveal how they disclose controversial mortgage termination and discharge fees.
ASIC will write a report for the treasurer based on responses to notices and questions sent to banks, building societies and credit unions. The ASIC survey will examine how exit fees are disclosed and applied by lenders in different circumstances.
The fact that ASIC is out there trying to get to the bottom of the complexities of mortgage exit fees does not reflect well on the industry consultation process conducted over the past six months by the Australian Payments Clearing Association (APCA).
APCA has focused on the development of a set of generic guidelines for customers wishing to switch their accounts and is expected to make the first draft of the guidelines available at the end of this month.
Under the guidelines there will be an obligation on financial service providers to provide a list of direct debit and credit arrangements and pass this onto consumers, who can then take it to their new financial service provider.
One criticism of the APCA approach to account switching is that the guidelines will not include credit cards. The Consumer Action Law Centre says consumers are increasingly using direct debit and direct credit arrangements in relation to credit card accounts, and there is no logical reason to exclude such accounts from the switching package.
It says that APCA should clarify whether consumers will be charged for the list of direct credit and direct debit arrangements and for assistance in changing these arrangements. APCA has told the Consumer Action Law Centre that it cannot discuss any issue concerning charges and fees for competition law reasons.
The treasurer's intervention in the account switching process by seeking details of how banks are disclosing their termination fees is a reminder of the long standing criticism of financial institutions – they are not transparent about fees.
Work done by ASIC released in April found that although financial institutions have abided by their statutory obligations to disclose fees, they have been happy to take advantage of complexity and lack of disclosure to make it difficult for consumers to compare products.
The publication of comparison rates, which combines the interest rate and up-front fees, has gone some way toward helping consumers make informed choices about the relative cost of mortgages. But the comparison rate does not include non-contingent fees such as termination and discharge fees. These can be substantial.
ASIC found there is no standardised nomenclature for fees, adding to the complexity for consumers. In contrast, financial institutions in the UK must use standardised terminology. For example, all fees payable due to early termination must be referred to as 'Early Repayment Charges'.
Swan has made clear he will not intervene in the market to regulate bank fees and charges. He is happy for competition to keep fees and charges in check.
Greater disclosure will help the competitive process, so bank customers will be hoping that latest ASIC survey of how mortgage exit fees are disclosed will be publicly released.
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