The federal government will introduce legislation to force banks to be clearer on basic deposit products that promise 'bonus' or higher rates of interest but have complex terms and conditions for achieving it.
The announced changes are in response to two separate inquiries into the banking sector by the Australian Competition and Consumer Commission over the past five years.
In the latest review, the ACCC found customers were most confused by so-called 'bonus accounts' with 71% of customers holding such accounts consistently missing out on bonus rates.
In December, the ACCC reported Australians were being short-changed billions of dollars in interest on their savings held in a complex network of more than 900 transaction and savings accounts heavily weighted at luring new customers at the expense of existing depositors.
The competition watchdog noted the terms and conditions for some accounts ran up to 108 pages.
Changes to home loan switching
Under the proposed new changes, banks will also need to provide simpler information to home loan customers so they have a clearer picture on whether they'd be better off switching to another lender.
This would also include providing direct and easy access to simplified paperwork for people wanting to change lenders.
The measure is in response to an earlier ACCC report, released in 2020, that found borrowers struggled to navigate the complex system of switching to cheaper loans which could often take weeks or months.
However, the report came out before the surge of borrowers refinancing in the wake of the pandemic as mortgage holders came off fixed-rate home loans, seeing a 14% jump in refinanced home loans in the 2023 financial year.
At the time, the flurry prompted lenders to court refinancers with cashback offers and purported 'easy switch' terms.
The ACCC had called on refinancing to be completed in 10 business days, but this suggested deadline has not been included in the reforms.
See Also: The Refinancing Process & Costs
Government forcing better competition
Federal treasurer Jim Chalmers said the changes are needed to help Australians get better rates on their mortgages and savings accounts.
"They will help create a more dynamic, diverse and resilient Australian banking sector, which is good for consumers, good for industry and good for the economy," he said.
The latest Australian Prudential Regulation Authority (APRA) figures showed Australian banks currently hold $3 trillion in deposits and $2.2 trillion in residential mortgages in the March quarter.
Dr Chalmers also announced a review into challenges faced by small and medium sized banks in providing competition in the sector.
The ACCC concluded the lack of competition in banking was a key reason customers were losing out in both the deposit and lending markets.
The review, to be led by the Council of Financial Regulators (which includes the RBA, ASIC, and APRA, and Treasury) and the ACCC, will consider how regulation could help smaller banks source funding to better compete with the big four.
The government changes will also require financial product comparison websites to better disclose how their products are ranked as well as the financial relationships they may have with product providers.
Changes don't go the whole way
The reforms, announced at the weekend, fall short on some of the ACCC's recommendations.
In its savings recommendations, the ACCC suggested banks should actively inform customers to switch to products with better rates if they were available and warn them if they were about to breach their bonus rate terms.
It had also recommended banks send annual personalised correspondence to costumers outlining how they could get a better home loan deal.
The government's promised to "work with banks" on further measures.
There is also no timeline as to when the changes will be implemented.
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