Trending Financial News 17 October
Payday lenders turn $600 into $3K debt
Loan sharks and payday lenders selling expensive small loans to vulnerable consumers often reliant on welfare and Centrelink are charging up to 400% interest said the Salvation Army.
Payday loans are often sold online as easy short-term solutions for credit up to $2000 but have exorbitant rates and fees.
Financial counsellor Kristen Hartnett from the Salvation Army told the Herald Sun that consumers were borrowing $600 for household items like a washing machine and paying back $3000 because of high interest rates.
Consumer Action Law Centre’s chief executive officer, Gerard Brody said some borrowers were having up to 60 per cent of their income from Centrelink gobbled up by payday loan repayments.
Tax cuts and rate cuts are falling flat
The government’s tax cuts have not yet delivered any discernible impact on spending by households said the RBA. In the minutes of the RBA’s October board meeting, members noted that recent tax cuts and rate cuts have not yet led to a pick-up in consumer spending.
The International Monetary Fund yesterday downgraded the outlook for economic growth in Australia to just 1.7 per cent next year. The IMF urged governments to spend and stimulate their economies, a call that was quickly rejected by Australian treasurer Josh Frydenberg who restated his government’s commitment to producing a budget surplus.
ScoMo tells banks – Don’t be sheepish
Prime Minister Scott Morrison has urged banks to not be “overly sheepish” in assessing loan applications. The governor of the Reserve Bank, Dr Philip Lowe said risk and writing loans.Mortgage sales are slow despite house prices starting to rise in Melbourne and Sydney.
New data from the Reserve Bank of Australia shows loans for housing are growing at their slowest rate since official records began in 1977.
Credit for housing grew 3.1 per cent for the year to August 2019, down from 5.4 per cent on the same period one year earlier.
Government urged to crack down on loan sharks
The government must crack down on payday lenders providing small, high-interest loans said the chief executive of the Australian Financial Complaints Authority, David Locke.
Mr Locke urged the government to enact the long-delayed changes to small amount credit contract legislation including a cap on the total payments that can be made under a consumer lease, a ban on door-to-door selling and a reduction in the proportion of income a Centrelink recipient can be charged for repayments.
The government released a draft bill two years ago with new rules for providers of small amount credit contracts and consumer leases but has not progressed the issue further.
Banks should treat customer complaints as ‘gold’
Banks and other financial institutions must get better at handling disputes with customers said the chief executive of the Australian Financial Complaints Authority, David Locke.
“What we want is better internal dispute resolution. Financial institutions must resolve more customer disputes themselves, so that fewer people come to us.”
“Financial institutions must see complaints as gold,” said Mr Locke, “To better understand and improve their systems.”
Australian Banking Association chief executive Anna Bligh said banks are recognising that complaints are valuable for understanding what is going on in the business.
“One bank now has a board sub-committee on customers and complaints, banks are thinking differently about this.”
There is no ‘loyalty tax’ says Commbank
Commonwealth Bank chief Matt Comyn rejected the idea that banks charge a ‘loyalty tax’ – meaning they offer new customers better rates than their existing customers get.
The chair of the government competition watchdog ACCC said existing home loan customers pay an average of 0.3 percentage points more than new customers. Mr Comyn said that was not accurate.
“It’s actually from our perspective substantially less than that,” he said.
Borrowers should not all pay the same rate said Comyn because they have individual risk characteristics.
Westpac denies putting profits before people
Westpac Group CEO Brian Hartzer rejected suggestions that Westpac had put its own profits ahead of the best interests of home loan customers in making rate decisions.
Defending the Westpac decision to hold back some of the RBA’s recent rate cuts, Mr Hartzer said “The assertion that it is only about shareholders is just not supported by the facts.”
“The net interest margin, over the last 10 years, it’s been coming down.
Australia’s banks “operate overall on a fairly thin profit margin” said Mr Hartzer who said he does not expect the ACCC’s new inquiry to uncover evidence of anti-competitive pricing.
How many bank inquiries do we need asks Westpac
Westpac Group CEO Brian Hartzer suggested the ACCC’s new inquiry into mortgage pricing was not necessary.
“The ACCC completed a review of mortgage pricing as recently as December of last year.
“There have been 57 different inquiries into banking,” said Mr Hartzer, “I don't anticipate that there's going to be any big revelation.
“What it will reveal though is that
[interest rate decisions are]
complicated and we make a very complicated set of choices.
The ACCC will hand down a preliminary report by 30 March 2020.