In yesterday’s AFR, David Crowe and John Kehoe (p 5, ‘Swan defiant on exit fee ban’) discussed the Treasury document (released pursuant to an FOI claim … the government never likes releasing these things voluntarily) warning about the ‘unintended consequences’ of placing a ban on exit fees. In particular, Treasury (amongst others) warned that such a ban would lead the banks to seek to recover actual or potential losses by increasing interest rates or other fees. Swan claims that any attempt to lift other fees to make up for lost revenue would be met with regulatory crack down – presumably based on the ‘unfair terms’ and unconscionable conduct provisions of the new Australian Consumer Law (ACL) as applied under the ASIC Act. He has said variously:
“We’ve been absolutely clear banks won’t be able to re-badge an unfair exit fee as another type of fee and we’ve given ASIC the power to go after any bank that tries it on” and “We’ve already put in place very clear provisions that unconscionable conduct when it comes to fees from banks will be scrutinised very closely by the regulator.”
In parliament Tuesday he said: “It is asserted by some that their abolition may mean that customers will pay more in other fees, but we have dealt with this in our consumer law and we have already put in place very clear provisions that unconscionable conduct when it comes to fees from banks will be scrutinised very closely by the regulator. It will not be tolerated if a bank seeks to move the fee from an unfair exit fee to somewhere else in the system, and that will be scrutinised very closely.” (House Hansard p 24)
But what makes a fee unconscionable? There is no precedent to suggest that the banks lifting fees would be considered unconscionable (the law in this respect has not changed fundamentally with the Australian Consumer Law). And contrary to Swan’s assertions, the unconscionable conduct provisions are far from ‘clear’ – particularly in respect of pricing practices. Similarly, a charge of fee is not unfair simply because it exists or is higher than a competitive rate.
The ban may have some positive consequences – it might lead to some increased competition between banks if switching is easier. But lets not pretend that the unintended consequences are not real – amongst other things it is likely to hit the smaller players harder and it is likely to result in some cross-subsidisation of other fees (effectively penalising those who choose not to switch banks) and let’s also not pretend that ASIC has powers that it lacks.
In the end, particularly when coupled with current proposals in relation to price signalling, it is hard not to agree with the AFR’s editorial (‘Bank bashing easier than real reform’, p 62, 23 Feb 2011): ‘Mr Swan should make up his mind and introduce sensible and robust reforms that will make a difference to competition rather than cosmetic measures that won’t have an impact, but will play to a populist agenda’.