Financial System Inquiry backs need for stronger consumer protection

CHOICE says today’s Final Report of the Financial System Inquiry is a blueprint to put consumer interests at the heart of the finance and banking system. However, the consumer group says the move to rein in sky-high credit card surcharges still lacks crucial enforcement powers.

“This is a comprehensive and considered report which, if implemented by the Government, would see the finance system truly delivering for consumers, ” says CHOICE CEO Alan Kirkland.

“The Murray Inquiry’s recommendations would see consumer interests considered in every step of financial product development: from product design, distribution, sale and after sale processes.”

“For example, the report confirms the need for strong protections for consumers seeking financial advice, as currently delivered by the Future of Financial Advice protections. We see this as a welcome end to the FoFA debate. The report confirms that it is time for the financial advice industry to prioritise trust, high quality consumer protections and transparency.

“It calls to extend financial advice protections by, for example, closing the loop on commissions allowed in the life insurance industry and requiring advisers to disclose if a big bank owns their business and can influence product recommendations.”

“The report recommends making ASIC a more proactive regulator, able to issue stronger penalties and intervene in products where there is evidence of consumer harm.”

Balanced against these reforms, CHOICE says the tough talk on credit card surcharges has not been matched by an effective solution.

“We already have a rule that limits sky-high credit card surcharges, but the problem is no-one has the role or power to enforce it. This report recommends further defining surcharging limits but stops short any enforcement or penalties for businesses not playing by the rules.”

“Without an effective enforcement system, consumers are destined to continue to pay excessive surcharge fees. Businesses like Qantas and Virgin continue to charge card fees out of all proportion to the costs of processing. Only an effective regulator and strong penalties will make them change their ways”

CHOICE says the key reforms from the FSI for consumers include

  • Increasing competency standards for financial advisers and reviewing loopholes that allow commissions to be received on life insurance recommendations and by stockbrokers.
  • Requiring financial advisers and mortgage brokers to proactively disclose ownership structures.
  • Giving ASIC proactive product intervention powers allowing them to temporarily ban or amend risky products.
  • Requiring consumer needs to be considered when financial products are designed, distributed and sold to protect consumers from unnecessary risks and to prevent situations seen in scandals like Storm Financial where consumer needs are poorly matched with risky products.
  • Improving funding for ASIC by adopting a three-year funding model and allowing the regulator to recover some costs from the industries it regulates.
  • Improving guidance for consumers purchasing general insurance by making it easier to create tools and calculators to purchase home insurance.
  • Developing a default option for the spending phase on superannuation