By Vanessa Tripodi
No one else is responsible for the way you manage your finances except you; if you don't pay your bills on time or spend over your credit limit it is not the fault of your provider. At the same time, the big banks are making record profits from exception fees and interest charges every year. So a new survey asks: Why are the Big Four allowed such a monopoly in the Australian financial market, when the diversity of being able to choose a more affordable financial product is all but quashed?
The big banks in Australia are recording 'super profits', according to the Australia Institute, in part because they are cashing in on the credit needs of low-income Australians. The Australia Institute report also makes a number of recommendations for the banking industry, including:
Breaking up the big banks. The Australia Institute recommends breaking up the Big Four Banks to reduce their dominance, as more than 75 percent of all bank assets, credit cards and bank accounts are with the Big Four, and 90 percent of all lending. It is suggested that the structure of the banks be changed to separate their retail from their investment banking for example.
Reduce big bank profits. Downsizing the Big Four Banks would aim to reduce their profits to just 1 percent of GDP where their profits are currently 3 percent.
Forced interest-rate movements. Having all Australian banks move their interest rates in line with the Reserve Bank, capping fees and offering a lower-cost alternative can give banking customers a cheaper no-frill alternative.
The big banks use their position to target vulnerable individuals. For example, the report surveyed 1,360 people and two out of three respondents had received an unsolicited credit card offer in the last 12 months, and half had been offered an increased credit limit. One in three low-income households have received an unsolicited offer of a personal loan in the last year. And while offers of credit are spread across income brackets, it should not be offered in the first place to those who cannot afford to repay.
Bank employees are also paid on a commission, which encourages them to approve loans and credit before looking too closely at your ability to repay. Therefore, before you accept an increased credit limit or pre-approved personal loan, take a look at your finances yourself; no one knows your situation like you do.
Published: September 28, 2010