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I'll probably broaden out on what Frank's already spoken on, in the sense that while ACA and the consumer movement has been very concerned about banking, in a very real sense our concern is much more dramatic across the finance sector, in insurance and superannuation, and a whole range of other services I think are equally deserving of very critical attention. ACA, for those of you who don't know much about the organisation, is an NGO situated out in Marrickville, publishes Choice magazine and has a small policy and advocacy unit, of which I'm part. It's totally self-funded... One of the interesting things about the consumer movement of course how it has grown out of product safety testing, back in the fifties, when Australian households became very much enamoured of buying whitegoods and a whole range of other things, and a whole range of consumer issues emerged out of that. And now, of course, our focus is very much more on services, with telecommunications, bank services, and financial services, and part of that is because services have become a much stronger part of the economy as a whole, but also because privatisation has changed people's relationship with service providers. Instead of accountability being pursued through government and administrative processes, corporations and service providers are now theoretically held accountable through direct consumer relationships. Now we're seeing very many cases that say that's simply not true, that there's a very string power imbalance directed against consumers, and we use every means we can to try and address that. There's
a couple of current principles essentially underpinning financial services
as a whole: So those are trends that have emerged very strongly in recent years, and that ACA and other consumer groups are concerned about. And in terms of the action that we undertake, unfortunately it's generally directed at stopping reforms and initiatives which are further those principles, and programs and initiatives that are designed to promote them. I think there's a danger in looking at financial services from a campaigning point of view, and focusing just on banking. Consumer groups and other interest groups have been extremely successful at raising the profile of banking issues, and access and affordability issues in relation to banking, and I almost think now it's too the detriment of other issues, and the clearest example I have of that, for example last year the Commonwealth Bank introduced a $5 a month account keeping fee, which greatly increased the cost of banking with that institution, and was a very much backward step for the benefit of masses of its customers, given that … the bank has a large proportion of long-term, vulnerable customers because of its history. In reality that costs $60 a year, but what most of them probably didn't know is that if their superannuation fund is being managed by the investment arm of the Commonwealth Bank, they're probably paying hundreds of dollars in extra fees because their employer might have outsourced their super fund to a retail fund rather than maintaining it in-house, or running it through the industry body. So those are issues that simply aren't on enough Australians' radar, but are actually having a bigger effect on their financial circumstances. I'll
just quickly go through some specific areas where we see issues where
we'd like to see other groups and stakeholders in forums like these start
to discuss: And that's unfortunate enough in terms of rising costs for organisations to be able to cover themselves against future liability claims, but even more concerning is the impact that's going to have on the law reform process. Is now almost a completed agenda, and one which has passed with very little scrutiny, even at a State and Federal level, because the State governments have endorsed that agenda, and the Federal governments have endorsed it. And so we now have legislation in place down the East coast of Australia, in the Eastern States, which very greatly caps damages payable for injury or death suffered by individuals, and which in many cases removes the right to make a claim altogether. We've had legislation passed through Federal Parliament, giving affect to waivers of any future claim for recreational activity. And only this week the Senate committee published a report in which the majority (the government members) endorsed the restrictions to section 52 of the Trade Practices Act which is the key provision in consumer protection in Australia. It's the prohibition on misleading and deceptive conduct by a corporation. And this would prevent anyone, any individual, any kind of class action or the ACCC, from ever mounting a claim in the event of death or personal injury arising out of misleading or deceptive conduct from a corporation. And on the basis of absolutely no evidence, absolutely no indication that there is any threat, and really, as was indicated by the opposition and minor party reports to that committee, no justification at all that this kind of attack on protection for consumers could even be justified. So we'll have to wait and see what the Senate does with it. Around the State now we're also seeing moves to implement professional standards legislation, so if you ever want to go and sue a professional - a financial planner, an accountant, an engineer, for any kind of loss you have suffered due to negligence on their part, you're going to have to try and work out every single possible party you need to serve, because the changes mean they'll get rid of joint and severable liability and you'll have to sue everybody, so that the blame and damage can be apportioned amongst all the parties. And the reality is for most people that that's simply going to be beyond their means, which again, is at the behest of insurance companies. So that's the way it's happening in insurance, which unfortunately doesn't get much of a run in the media, because the way the public liability crisis has played out is that it's something that people are quite comfortable to let happen. In banking, we still have a long way to go, the basic bank account was an initiative pursued by a whole range of community organisations, which the ABA walked away from, very much displayed the flaws in the ACCC's processes for approving these kinds of arrangements. The ABA didn't get exactly what it wanted, which was very much a substandard, kind of basic account for low-income Australians, they could just walk away, and there's basically nothing anyone can do to bring them back to the table on that. I think it shows very much why further regulation is required in the financial services sector, because frankly, the banks are not interested in picking up those issues and meeting those particular social challenges. They know that there's real limitations on competition in that sector, and it's I think an issue that starting to really feed into the debate over whether we should have publicly-owned financial institutions. I think I would now actually pretty skeptical about that, because it really allows the banks to get away with it. What they are currently doing with their fee charging, and branch closures, is trying to shed low-income customers, people they can't sell mortgages to, people they can't sell margin loans and investment portfolios to, because they're not comfortable and what they know is that credit unions, community banks, the Bendigo bank, smaller banks, and you could have a public bank, who could pick up that slack, and leave them to just focus on the most profitable people - for them - in the community. So that's why I'd prefer to see them held accountable, and particularly a bank like the Commonwealth, told: you've had decades of public investment in your infrastructure, and now you want to absolutely hive off any responsibility for all those customers you have a social responsibility to serve. So that's why I think that's an argument that should be coming out in any discussion of a publicly-owned bank. Clearly we need a social charter. I noticed in today's Financial Review the CEO of the Commonwealth Bank, David Murray was making comments about the need to rearrange customers. Cold day in hell when David Murray grows a conscience. Perhaps it does show that at least that bank is starting to suffer a bit, and that would be nice, if we did see some reduction among the customers they are chasing in the reputation of that bank. But at the end of the day I actually think it's only likely to be marginal. I'll move on to superannuation, because that again is an issue of real concern. I think Australians have been sold on the idea that particularly baby boomers will be able to retire on vast wealth built up over years of investment in their superannuation. They're now being prepared, through messages coming particularly from the investment institutions side of the industry, where the profit is, telling people that they're not going to have enough money to retire and they'll have to make other arrangements, they're telling them they'll have to make voluntary contributions. Now that's clearly because people are seeing how their superannuation is performing, they're seeing the amount they're paying in fees (those people who are aware how high the fees are on their accounts with those institutions) and aren't putting their money into the fund, and they're not the profit makers that the retail institutions has hoped they would be. One of the great ironies of superannuation is that the industry funds the funds with union representatives on the board, are actually outperforming all of the for-profit financial institutions. Partly because their fees are much lower, and they have economies of scale, which they are passing on to their members, and partly because their trustees and their board structure mea that there's some engagement with making good decision-making, and they actually do decide where to allocate this money, in a way that's providing good returns on their investment for their members. In the financial institutions, I think they're really struggling with the fact they don't have the answer, they don't know how to invest people's money to overcome the amount they're taking out in fees. And that's becoming clearer and clearer to a number of people who are using those funds. The problem is, though that a number of employers, too, are outsourcing their work to these funds, and how we go about trying to fix that situation, and trying to keep people in the funds where they're going to have the best returns, and that is the not-for-profits, is something that is a constant struggle with the current federal government. Credit, I suppose is the last area that is of concern for us, the availablity of credit that now really underpins so much of our economic growth, consumer spending, construction, is totally unsustainable, but it does make people very conservative, when they're mortgaged up to the hilt, and have their credit cards maxing out, then they become a lot more conservative about when interests rates are going to move, they become much more concerned about who's a better financial manager in terms of the political sphere, they become much more worried about their employment security, and we see all sorts of social consequences from the fact that people are now much less economically secure, even though they also feel on the other hand that they're getting wealthier and wealthier, because they see in many cases, the spiralling value of their house. So we see areas, in particular consumer finance, where there needs to be very clear information to particularly vulnerable consumers. There are some great initiatives in the community sector that run across finance for appliances, such as a no interests loans scheme to try and save people from fridge lenders, and if they need a fridge they can get it through the brotherhood rather than having to go to some dodgy outfit down the street. We need better regulation of payday lenders, while we finally have some regulation fees are still so high that they're almost, in some cases, a breach of the 48% interest rate cap for those kinds of finance. And then we look at margin loans and the whole notion of shareholder societies, we did a study of financial planners and people are constantly being pushed into products that generate commissions, and key among those were margin loans - people trying to take out loans against their houses to buy shares and suffering great losses as a consequence. So
in summary, there are some good lessons out of what we do see in the financial
sector: :: And we need to see regulators with sufficient expertise, independence and resources to actually stand up to big business, and that again is a particular fight, particularly at the moment with what's looking like a very worrying emerging situation at the ACCC. So I also think at the end of the day, there's direct action. We can be as successful as we will or have been with the banking sector in raising consumer and community awareness of the need for more action, and to keep up pressure not only in banking for a social charter and reregulation, but also introducing that kind of pressure in areas like insurance and superannuation. Then I think we actually can make some positive changes in this industry.
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