Most of the post-Hayne discussion about financial services has been about how regulators can be better resourced and managed to make banks, insurers and wealth management companies behave better. It is as if consumers are passive, helpless bit players in all this.
Australian Prudential Regulation Authority chair Wayne Byres issued a timely reminder last week that consumers have an important role in shaping change. Speaking at a conference in Sydney he said: “If, as a community, we feel uncomfortable that the financial sector has products and services that profit from apathy and inertia – which it certainly does – then the best response by customers is to engaged and active.
“Shop around, exercise choice – or dare I say it, don’t just get mad, get even. There’s no better way to align community and commercial interests than to make the community voice evident through action.”
We couldn’t agree more. People who complain about their banks should be prepared to make the effort to look for a better and move to another provider. We know who all the bad ones are.
Every consumer of financial services should have a to-do list that includes reviewing their home loan (especially now that there has been so much rate cutting over the past couple of months), reviewing insurance, checking their credit reports and credit scores.
We should all read our transaction account and credit card records to make sure there are no incorrect fees or fraudulent transactions. We should read our super fund statements to make sure our details are correct and we have received all our contributions.
Wayne Byres is not the first regulator to tell consumers to be more vigilant. Australian Competition and Consumer Commission chair Rod Sims says that if you have not reviewed your utility contracts in the past few years you are probably being ripped off. That I because the god pricing deals go to winning new business, not rewarding loyal customers.
In a speech last week, Byres said good regulation of financial services required more than tighter regulation. It also required good industry self-regulation. But he warned that if consumers were not active, companies would be less likely to take their interests into account.
Byres said that despite the toughening of regulatory practice post-Hayne, the regulatory framework is founded on the premise that boards and executives are ultimately responsible for the activities and performance of their companies.
“The optimal model of financial regulation – lowest cost, best outcomes – therefore requires self-regulation to play its part.”
Byres said the increase in formal regulation was, in part, a consequence of weak self-regulation.
“Undoubtedly, this additional regulation comes at a cost and industry complaints about regulatory burden are increasingly being heard again. Thus far, however, not much has been offered as an alternative means of generating better outcomes.”
He pointed to the fact that ASIC had been warning the industry about problems with consumer credit insurance since 2011, but industry did not do enough to address those problems.
He said APRA had urged industry to take steps to address poorly designed incentives in remuneration packages, without much response. Instead the regulator is developing a stronger prudential standard.
“A better solution, which I urged some time ago, would have been for industry participants to take up the challenge and not wait for regulatory intervention. Unfortunately, despite the efforts of some, stronger regulation seems unavoidable.”
He said a recent round of reviews and updates of industry codes was a positive trend but it had “taken too long for the penny to drop.”
“The real evidence of change will be when industry participants are willing to stand against the tide, or even better stand up and call each other out for behaviour that damages the industry’s reputation and long-term standing.
“We often hear executives complain they would like to curb a certain practice or stop selling a particular product but would suffer first mover disadvantage. This was a classic excuse in APRA’s intervention in mortgage lending.”
