Australia unveiled tough changes to finance laws yesterday, banning unpopular mortgage fees and cracking down on price collusion between major banks in a bid to boost competition in the sector.
Australian Treasurer Wayne Swan said the reforms aimed to empower consumers, bolster smaller lenders and secure credit flows to both consumers and business, pledging a “fair go in the banking system.”
Targeting Australia’s “big four” banks, the reforms ban exit fees on new home loans and allow the competition regulator to prosecute lenders for colluding on rates, after large hikes sparked an angry consumer backlash.
An additional A$4 billion (US$3.94 billion) would also be injected into the mortgage-backed securities market under the reforms, Swan said.
“Build[ing] up competition in our banking system will ensure that interest rates are lower over time,” Swan told reporters. “It’s very important that we don’t let the big banks off the hook.”
Credit unions and building societies would for the first time be able to issue covered bonds — triple-A-rated debt instruments backed by mortgages or public sector loans — as a “way of lessening our reliance on overseas markets” for liquidity, the treasurer added.
A government guarantee on deposits introduced during the global financial crisis would also be made permanent and extended to smaller lenders.
The long-awaited reforms follow simmering discontent over Australia’s comparatively steep interest rates, which are now higher than 7.5 percent because of hikes by commercial lenders above the 4.75 percent official cash rate.
Holding the benchmark rate steady this month, the Reserve Bank of Australia (RBA) noted that “lending rates in the economy are now a little above average” because of the commercial banks raising the cost of borrowing above the RBA rate.
Swan has slammed the “big four” — ANZ, Westpac, National Australia Bank and the Commonwealth — for moving above and beyond the RBA despite recording bumper profits, accusing them of arrogance and a “cynical cash grab.”
Australia’s banks were credited with helping the country stave off recession during the global financial crisis after they eschewed risky lending and investment practices seen in the US and Europe.
However, a series of seven rate hikes since October last year has hit home-owners, while thousands of customers are expected to join a potential multi-billion dollar class action suit against a swathe of unpopular minor banking fees.
Swan said the global financial crisis had significantly eroded competition in Australia’s A$2.5-trillion finance sector by sinking smaller lenders, leaving “competitive roadblocks” that gave the major banks too much power.
“There’s no silver bullet when it comes to building up competition in the banking sector, but today I’m announcing a raft of changes which will further strengthen competition in this vital sector for the Australian economy,” he said.
Several pieces of legislation have to pass Australia’s parliament in order for the reforms to go ahead, with the ruling Labor party holding a majority of just one.
Swan said he was hopeful of getting the necessary support and he would be strongly arguing the case for reform, which received a mixed response from the industry.
Some critics said the latest changes did not go far enough, while the Australian Bankers’ Association said exit fees reflected “legitimate costs of mortgages and banning them will hurt smaller lenders.”