Howard's End: Who’s Watching The Bankers?
The Reserve Bank of Australia has produced a report which exposes bank tactics in hiding fees, setting prices collectively and heavily promoting credit cards because they make the most profit for the banks, not because they are the best product for consumers. Calling New Zealand Reserve Bank Chairman Dr Brash, calling Dr Don Brash, where are you Dr Brash? Maree Howard writes.
After years of judging the credit practices of Australian consumers, the banks have had their credit card schemes judged and the result is a resounding failure.
For the first time, the banks' monopoly on providing credit cards - blamed by many for the high interest rates customers have to pay - could be smashed, replaced with a near-open market where retailers can undercut them.
The new plan has been proposed by the Reserve Bank of Australia in a report released last week after a two-year inquiry into Australia's $3 billion credit card industry.
It was a review of the history of credit cards since Bankcard was introduced in 1974 and explored whether the banking industry's protection should continue.
The conclusion was damning.
Banks "do not serve the public interest." The report cites as evidence that while general interest rates have fallen 2 percent over the past year, with no competition, bank credit card rates have barely changed.
"The document concludes the cost to the community of the credit card network is higher than it would be if more competitive conditions prevailed," said Reserve bank Chairman Ian McFarlane.
The bottom line from the review is with more competitive conditions, an estimated $500 million each year would flow from the banks back into the pockets of consumers.
Consumer advocates say it is not unreasonable to expect dramatic reductions in credit card interest rates if the proposed reforms are made law.
"Consumers need only look at what's happened in the home loan market over the last decade," said Chris Gosselin, executive director of consumer group InfoChoice.
Already the banks have thrown the PR budgets at the problem, spinning the disadvantages, threatening consequences and using fear tactics to stop the Australian Federal Government implementing the Reserve Bank plan.
Similar punishment was dealt out when bank fees were increased to compensate for lost revenue during deregulation of the home mortgage market and the introduction of new providors of mortgage finance.
The banks have been quick to point out that the findings are not all good news, recommending that interchange fees be charged to customers.
This is the fee currently paid by the merchant - around $1 a purchase - because they are banned from passing it on to the customer. It is this fee that is added to retail prices for all consumers.
Under the Reserve Bank changes, retailers would be allowed to charge them to the credit card customer - but likely will not.
The giant retailer, Harvey Norman, has already pledged not to. It's Chairman Gerry Harvey says: "Realistically, the customer is not going to pay, and it's not an issue."
Consumer groups believe the prospect of lower interest rates outweighs any disadvantages.
University of NSW financial services consumer policy centre director, Chris Connolly, said: "We hope the Reserve Bank will see the reforms through and will not be swayed by the massive lobbying efforts of the banks and credit card companies."
MasterCard general manager, John Verco indicates his company for one will fight any changes. " MasterCard is keen to ensure any proposed changes to its Australian credit card operations do not affect its viability or vitality."
The Australian Competition and Consumer Commission has already given its stamp of approval saying consumers and small businesses could save hundreds of millions of dollars annually.
Australian Federal Government Treasurer, Peter Costello, has also given a cautious nod - saying any increased competition could benefit consumers.
The Government must not decide if it will side with the banks or consumers.
Calling Dr Brash, calling Dr Don Brash, where are you Dr Brash?