Media release: Consumer protections can drive economic growth and innovation in financial system
Consumer Action Law Centre has welcomed the Federal Government’s inquiry into Australia’s financial system. In its submission on the inquiry’s draft terms of reference, Consumer Action has suggested that it should consider how consumer protections can be a key driver behind economic innovation and efficiency.
‘The Treasurer says he’s looking to “balance competition, innovation and efficiency, with stability and consumer protection”, which suggests he sees a vibrant economy and consumer protections as conflicting. But in many cases consumer protections can stimulate the economy and increase competition and innovation,’ said Gerard Brody, CEO of Consumer Action.
Mr Brody pointed to Australia’s ability to weather the Global Financial Crisis as proof that regulation can benefit both business and consumers.
‘Australia’s strong prudential framework allowed our financial system to stand tall when many other economies across the globe were in crisis. It underscores the positive role that regulations can play in a well-functioning economic system’, said Mr Brody.
Mr Brody also pointed to the ban on mortgage exit fees in 2010 as an example of a policy which made the market fairer for consumers and increased competition.
‘Mortgage exit fees made it difficult for borrowers to compare the true cost of home loans. The fees were not included in headline interest rates, hindering product comparability. Banning exit fees stopped lenders from hiding the real costs of the loan, and data from the Reserve Bank shows that bank fees have declined on mortgages since the ban was introduced.’
In its submission, Consumer Action also recommended that:
- the objective for the Inquiry should focus on whether the financial system meets consumers’ needs and contributes to Australia’s wellbeing;
- the Inquiry should consider ways innovation can be encouraged to fulfil social needs, not just short-term profits of the finance industry;
- in assessing the consequences of financial regulation, the Inquiry should consider whether that regulation is meeting its stated aim efficiently, and not only the costs and negative impacts of the regulation;
- in recommending policy options, the Inquiry should consider the adequacy of consumer protections in promoting consumer confidence, which is integral to economic growth; and
- the Government consider including an expert in consumer policy on the Inquiry panel.
‘Stimulating the economy and encouraging competition are necessary and important goals, but let’s not throw the baby out with the bath water—robust consumer protections can help business just as much as they’ve helped their customers and we shouldn’t be in a rush to get rid of them in the name of deregulation,’ said Mr Brody.
A copy of the submission is available by clicking: Financial System Inquiry—Draft Terms of Reference.
Media contact: Dan Simpson, 0413 299 567