Consumer advocacy group CHOICE has welcomed the Federal Government’s response to the Financial System Inquiry (FSI) which places consumer interests at the heart of the finance and banking system and critically signals an end to excessive credit card surcharging.“We have long campaigned for a better banking system in Australia and the Federal Government’s decision today to crush sky-high credit card surcharging delivers on a big priority for consumers,” says CHOICE Chief Executive Alan Kirkland.
“While consumers will need to wait until mid-2016 for this new surcharging law, industry is on notice. Qantas, Jetstar, CabCharge and the other worst offenders have to clean up their act on surcharges before they face legal action.
“Importantly, the Financial System Inquiry outlines a vision for a stronger corporate regulator, supported by measures that would bolster protections for consumers. Today the Federal Government has supported this vision and taken the first step to make it a reality,” says Mr Kirkland.
The FSI was a once in fifteen year review of the financial system and issued its final report in December 2014 with recommendations covering banking system stability, objectives for Australia’s growing superannuation system and reform to increase consumer protection.
“CHOICE applauds the government for working towards a financial system that delivers fair outcomes for all Australians. The government’s response recognises that the balance has been wrong in the system and that consumers need stronger protections backed by more powers for ASIC and the ACCC,” Mr Kirkland says.
In a significant move for consumers, the Federal Government has committed to introduce legislation to reform the design and distribution of financial products.
“The new ASIC power to examine product distribution and design will make everyone in the financial system responsible for consumer outcomes. It will see consumer interests considered in every step of financial product development, from product design and distribution to sale and after-sale processes.
“The Federal Government has also supported the recommendation for the regulator to be given new product intervention powers. This new power would allow ASIC to stop financial disasters before they start and to ban harmful products, rather than cleaning up after unscrupulous players have fleeced customers.
“The response also recognises that we need to go further in banning commissions that stop consumers getting quality advice across the financial system. We were pleased to see the government commit to crack down on commissions in life insurance advice and promise an ASIC investigation into mortgage broker remuneration.”
CHOICE has previously raised concerns about the commission-driven model behind mortgage broker remuneration. A CHOICE shadow shop from May 2015 found a number of examples of consumers receiving poor recommendations from brokers, indicating a need to look at how broker remuneration may lead to consumers getting a poor deal.
CHOICE says key points for consumers from the Federal Government’s response to the FSI include:
- A commitment to examine the efficiency of superannuation and default products for retirement.
- New legislation to ban excessive card surcharges and to make the ACCC responsible for enforcing the ban.
- A Productivity Commission review of access to data, which could lead to consumers accessing information about how they use financial products and allow personalised product comparisons.
- A commitment to create a targeted and principles-based financial product design and distribution obligation, that will make all participants in the financial system responsible for consumer outcomes.
- A commitment to give ASIC new product intervention powers to modify or ban harmful financial products.
- A commitment to reform the commissions received by financial advisers on life insurance products to reduce conflicts of interest.
- An ASIC investigation of remuneration structures in the mortgage broking sector.
- A commitment to raise standards in the financial advice sector by increasing education, ethical and professional standards for advisers.
- New legislation to make sure financial advisers and mortgage brokers disclose any relationships they have with institutions like major banks or parent companies.
- An agreement to review ASIC’s enforcement regime, looking at new penalties in 2017.
- Ongoing reviews of the state of competition in the financial sector.