Monday, December 13, 2010
WAYNE Swan's banking reform package is a persuasive read. But what difference will it really make to borrowers' ability to get a better deal?
We might have to be patient. Most of these reforms are sensible and small-scale: giving consumers more information, giving lenders more funding options. But there are two things on Swan's list that, in time, could make a difference.
The first is his plan to ban exit fees for new mortgage loans from July 1 next year. It will apply only to new loans. It won't cover almost $1 trillion we owe already on existing mortgages. Nor will it apply to small business loans .
Is that a copout? No. Think ahead.
Including refinancing, we take out 600,000 mortgages a year. Two of the four big banks have scrapped exit fees already; the rest will follow.
That might not make us better off. There are real costs to banks when customers break off loans early and banks have ways to get that money from us.
But in future, they won't be able to do it by locking us in to a lousy rate when the credit union over the road offers cheaper deals. We will be free to move.
The second potentially significant reform is the review by Bernie Fraser of the feasibility of giving each of us a personal account number that we take with us if we change our bank.
It's subtle, and it's not certain to happen. But if it does and it probably will that too would slightly shift the balance of power between the bank and you in your favour.
I can't believe the Australian Competition and Consumer Commission will ever succeed in prosecuting a bank for "anti-competitive price signalling", but it won't hurt to give it that power.
And when so many vulnerable people get into serious strife over credit card debt, Swan's changes to tighten the rules are reforms that matter.
But where will the competition come from? New Zealand's Labour government set up Postbank in its post offices. Swan prefers to help credit unions and building societies become a "fifth pillar" to challenge the banking cartel.
It's a big ask. Swan's package would widen their sources of funding. But his biggest step is to pledge that the government's guarantee of deposits will continue in some form after it is due to expire next October.
And as the guarantee will apply equally to credit unions and building societies, they will be free to advertise "government-protected deposits".
These are changes at the margin. They won't put banks at risk. If they work, it will be over time. But they are a serious bid to drive change.