“I’m from the government, and I’m here to help you.”
These are the most terrifying words in the English language, according to former US President Ronald Reagan. And you can see why as Australians grapple with changes to credit card surcharges. The incoming ban was supposed to save consumers $1.56 billion, but businesses such as restaurants and coffee shops are already raising prices to compensate. Taxi companies have joined in, some charging 5% of the fare as a “service charge”.
Institutions that can’t easily raise their prices are refusing to accept credit card payment, so if that’s how you budgeted for school fees, council rates or income tax payments, you’ll need to think again. And, of course, the banks couldn't let the opportunity pass. Annual credit card fees have leapt, reward points have been slashed, and consumers are wondering where their promised savings have gone.
But it needn't be like this. Here are three simple changes the government could make, at little cost, that could transform the lives of hundreds of thousands of Australians.
ONE
Let's start with the issue dominating talkback radio since I wrote about it a fortnight ago: banks freezing customer accounts without warning because they haven't supplied additional identification or other information. It's a financial cyberattack, but it's the banks attacking their own customers. Suddenly, people can't access their money, pay their bills or run their businesses. The consequences can be devastating.
The only remedy is to spend hours on the telephone trying to reach a human being, or to find a branch that's still open and join the queue in person. Imagine a small business owner, already battling rising costs and endless red tape, who suddenly finds his account frozen. He can't pay staff or suppliers, and must abandon his business for hours to sort out a problem entirely of the bank's making. That's productive time lost, income forgone and another blow to a business already struggling to survive.
My inbox has been flooded with horror stories, but one takes the cake. A friend was in discussions with the Commonwealth Bank about whether her family trust's name should include the word “the”. Was it “XYZ Trust” or “The XYZ Trust”? While those discussions were underway, the bank froze the account. You couldn't make this stuff up. Who in management decided that minor confusion over the official account name justified denying a customer access to her own money? The sheer arrogance beggars belief.
Electricity companies have special obligations to customers who depend on life-support equipment. Once registered, those customers must receive advance notice of planned power interruptions so they can make alternative arrangements. Yet a bank can suddenly cut off someone's access to their money, leaving them unable to buy food, pay bills or meet essential expenses. Legislation forces electricity companies to take special precautions before interrupting a customer's power lifeline. Surely a bank should have similar obligations before cutting off financial lifelines. The principle is identical: give people reasonable warning and an opportunity to protect themselves before pulling the plug.
Of course, banks have legal obligations to verify identities and comply with anti-money-laundering laws. Nobody disputes that. But those obligations should not be an excuse for treating customers like criminals. We need legislation requiring banks to exhaust every reasonable avenue of communication – including personal contact where practicable – before freezing an account, unless immediate action is legally required or necessary to prevent fraud. And if an account is frozen, there should be a fast, direct, and effective way to resolve the problem, not hours spent begging for someone to answer the telephone on the general number.
This would spare customers enormous distress, save businesses needless disruption and reduce the time bank staff spend cleaning up the mess. It would cost the government virtually nothing. Banks make billions in profits from their customers. Giving those customers access to their own money – unless there's a compelling legal reason not to – is both core business and basic decency.
TWO
Borrowers are constantly urged to shop around for a better home loan rate, but there's a catch that keeps buyers without a 20% deposit tied to their bank. It is lenders mortgage insurance, which can cost more than $20,000.
Suppose you've paid $20,000 in mortgage insurance on your ANZ loan and discover CBA is offering a much better rate. You decide to switch. Same borrower, same property, same risk. But lenders mortgage insurance isn't transferable between banks, so you could face another $20,000 premium. That's money struggling borrowers simply don't have.
The result? Borrowers become prisoners of their existing lender until they've built enough equity to avoid mortgage insurance. And the banks know it. The solution is obvious: legislate to make lenders mortgage insurance transferable between lenders without another premium. There are only a handful of insurers; it can’t be that hard.
Borrowers could then shop around without being penalised. More competition, lower repayments and not a cent of government expenditure. Problem solved.
THREE
Some of Australia's most vulnerable people are older renters, particularly single women who have escaped domestic violence or never managed to buy a home. As rents soar and Centrelink assistance falls behind, returning to work can make matters worse.
Take Margaret, 67, who has virtually no assets and pays $400 a week in rent. Rent assistance of $111.90 reduces that cost to $288.10. Her full age pension of $32,180 brings her annual income, including rent assistance, to $37,999. Suppose she takes a job paying $45,000, or $1,667 a fortnight. Once assessable income exceeds $226 a fortnight, her pension falls by 50 cents in the dollar. The Work Bonus exempts $7,800 annually, with a possible additional $4,000 credit. Even so, Centrelink assesses $33,200 of her wages, reducing her pension by around $530 a fortnight to $18,518 a year.
Then comes the taxman. Margaret’s salary and pension produce an estimated tax bill of $10,298. So working costs her $23,960 — more than half her wages – and leaves her over $11,000 worse off. What an extraordinary way to treat someone trying to improve her circumstances.
Contrast this with the Wilsons, who own a $3 million home, and have $800,000 in super and $50,000 in lifestyle assets. They receive a part pension of $21,138, enjoy concession cards and withdraw $80,000 tax-free from super. Because Centrelink deems their super to earn just $27,788, they can earn another $52,863 from work without losing any pension.
It’s insane. Margaret, with virtually nothing, loses more than half her wages to tax and pension reductions, while a wealthy couple can earn $52,863 without losing a cent of pension. It's welfare turned upside down.
The government should urgently ease the pension income test for older renters, allowing them to earn substantially more before their pension is reduced. These are people who want to work, need the money and have something to contribute. Instead of punishing them, we should be encouraging them. Surely that's what good government is supposed to do.
Political appetite for change
The response from Canberra was revealing. Both One Nation and the Greens said they would support these ideas, while Shadow Treasurer Tim Wilson said: “While we have not announced a formal policy, we support greater flexibility in lenders mortgage insurance, allowing pensioners to work without penalty, as we advocated at the last election, and preventing banks from freezing accounts unnecessarily because of needless regulation. We will consider these issues as part of our deregulation agenda.”
Labor was less enthusiastic. It failed to answer the first two questions and offered a generic response on pensions that suggested it hadn't even understood the problem. Clearly, there's little hope of relief for low-income single pensioners from that quarter. Three simple reforms, virtually no cost to taxpayers, and enormous potential benefits. Surely that's not too much to ask of our politicians.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: [email protected].