The other day I noticed a column I’d written in 1990 saying the banks’ abuse of their customers’ trust was getting them a bad name, so they should desist.
That was almost 30 years ago. It tells you the banks started playing up not long after the Hawke-Keating government deregulated them in the mid-1980s.
I was complaining about the way they’d offer new customers a better deal than their existing customers, then make no effort to tell their unsuspecting suckers they should change.
They’re still doing it, of course. But as the banking royal commission has informed us in the most gruesome detail, they’ve graduated to much worse than exploiting their customers’ loyalty and inertia.
Their policy of buying into every dimension of “financial services”, particularly “wealth management” – running superannuation funds, and giving people advice on where to invest their retirement savings – has opened an Aladdin’s cave of opportunities to charge fees and commissions, plus temptations to exploit the conflict been their interests and their customers’.
“Why don’t I get you to agree to put your money into an investment that pays me a higher commission, or that’s offered by another part of my bank, even though it wouldn’t be the right thing for you?”
Financial services are particularly susceptible to overcharging, not just because the sellers know so much more than we do, but because ordinary mortals find financial details extraordinarily dull and have great trouble making themselves spend their precious leisure time examining statements, closing old accounts and checking up on businesses they should be able to trust.
And now, of course, we’ve had Westpac making an “out-of-cycle” increase in mortgage interest rates, and are waiting to see whether the other big banks will use the chance to raise their own rates.
Will they be game to add further offence while they’re at the height of their unpopularity? I fear they will.
If I’m right, this will tell us a lot about how banking got to be in its present sorry state and how likely the royal commission’s proposals for reform are to change the banks’ bad behaviour.
The commission’s inquiry is nearing its end. Its interim report is due by the end of this month, with its final report due by February 1. So we’re likely to know its recommendations – and what each side proposes to do about them – before the federal election.
Is it reasonable to hope it won’t be too long before the banks' bad behaviour is a thing of the past? Yes and no.
The commission's being conducted by a former High Court judge and a lot of barristers. If these lawyers interpret “misconduct” to mean breaking the law, they’ll be focused on referring suspect banks and individuals for further investigation, tightening up the law and making sure the bodies supposed to be regulating the banks, particularly the Australian Securities and Investments Commission, get more resources and try a mighty lot harder than they have been.
If this is the way things shape - and provided punishments extend to fining or jailing individuals, not just imposing fines on businesses with the deepest pockets in the land – I think we can hope for a marked reduction in rule-bending and outright lawbreaking.
The problem is that the big four banks have been so focused on the game they’re playing that they’ve lost touch with reality – with how many customers’ lives they’ve been ruining; with the way the rest us have come to despise them.
When the spouses of bank chief executives and board members realise their other half risks a trip to the slammer, just watch them pull their heads in.
Trouble is, most of us haven’t been victims of illegal behaviour. It’s no offence to take advantage of customers who aren’t paying attention. It’s not against the law to raise interest rates out-of-cycle.
In other words, there’s a big economic dimension to the banks’ misconduct. Neglect that and we’ll still have much to complain of.
The strange thing about banking is that it’s ruthlessly competitive and uncompetitive at the same time. The banks’ bosses are obsessed by a game in which they compete to achieve the highest percentage increase in their profits and share prices.
It’s this competition that’s kept bankers in their bubble of unreality, urging their minions on with KPIs and commissions and bonuses, and turning a blind eye to the rule-bending they lead to.
This is why Westpac has moved to protect its profit margin by passing a small increase in its costs on to customers, even though our banks are already among the most profitable in the world. And this is why its competitors are likely to follow suit, whatever their customers think.
It’s the lack of price competition at the retail level that makes it possible for the banks as a group to raise their prices whenever they see fit. The others could hang Westpac out to dry, but it’s a safe bet they won’t.
It’s only effective measures to increase price competition that will stop the banks overcharging us. There are no easy answers. But the banks are so influential that, to date, neither the two parties nor their bureaucratic advisers in Treasury, the Reserve Bank and the Australian Prudential Regulation Authority have shown much enthusiasm for the challenge.
That’s what we must hope all the voter anger generated by the royal commission is about to change.