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Thursday, December 31, 2009

Thursday column: Happy new year - it's still hard to switch banks

Early in 2008 as Treasury staff beavered away on the Treasurer's much-hyped bank-switching package, Wayne Swan made a private phone call.

He told Peter Kell, then head of the consumer group Choice that he wasn't completely happy with the Treasury's approach and asked for personal advice about how to design a system that would really work.

Kell said at the time they spoke for half an hour with the Treasurer asking questions that made clear he was was genuinely across the details.

Which is probably why Wayne Swan is no longer trumpeting the package that resulted...

Ahead of its introduction in November 2008 he said it would empower customers to "pass their judgement to their banks," change banks and "put them under competitive pressure".

Since then, scarcely a word.

The silence was understandable during the months in which mortgage rates were plummeting. No-one would have been much interested in switching.

But when mortgage rates started climbing in October and when Westpac opened up the biggest-ever gap between the big banks' mortgage rates in December, a Treasurer who had confidence in his product might have been expected to be spruik it from the rooftops.

A government advertising campaign would have been entirely reasonable. "We've made it easy to switch over your mortgage. Here's How."

Instead we've had silence, most probably because the Treasurer knows it's not easy.

Westpac is banking on it's customers suspecting or figuring that out.

Here's what you'll have to do if you want to switch banks.

After finding a new mortgage that's cheaper (hint: a NAB loan is an extraordinary 0.27 points cheaper than a Westpac loan - that's $50 per month cheaper on a $300,000 loan) you'll probably have to prove your identity all over again. You'll need to assemble driver's licences, passports and signed statements from people such as church ministers who can certify that they know you, 100 points worth. If it's a joint mortgage your partner will have to do it as well.

You might be lucky. You might already be known to the new lender. But you'll still have to demonstrate your spending and savings habits all over again. Months of bank statements should do it along with pay slips or group certificates and perhaps a letter from your employer confirming that you work there.

The new bank might also want child support statements, even superannuation statements. It'll want you to value your house again. And it'll want a copy of your rates notice.

The bank switching package eases none of these requirements. It could have. A simple rule saying that if you were known to one of the big banks there was no need to reprove your identity to another would have been a start. As would a rule saying that if you were simply switching a mortgage established in the last three years there was no need to reprove your eligibility for it. If one of the big four has found you eligible, that should be good enough for the others.

But these would have been radical changes that the Treasury and the banks would have resisted; the Treasury because of ingrained caution and the banks in part because they would have been effective.

Instead the Treasurer was left trumpeting a package that was mainly about what happens after you switch banks. It requires your old bank to hand your new bank a list of your regular deductions, which eases some of the pain of switching, but not much.

He has also encouraged the banks to cut or eliminate exit and entry fees. Also a help, but a less than complete one.

At a time when the case for switching is clearer than ever, most of us still won't do it because of the weeks - even months - it would take out of our spare time.

Despite the Treasurer's best intentions we're "sticky", which is how spiders like insects, and how banks like their customers.

Published in today's  Age

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