The banking royal commission’s final report recommends sweeping changes to address misconduct in the troubled sector.
The government has committed to take action on all 76 of Commissioner Kenneth Hayne’s recommendations, saying the banks “must change and change forever”.
What will this mean for regular Australians? Here are the key ways the changes will affect you.
1. IF YOU’RE BUYING A HOME
If you use a mortgage broker, you will have to pay a new upfront fee.
More than half of all home loans settled in Australia go through a broker. Customers naturally expect that broker to act in their best interests — but that isn’t necessarily the case.
“Borrowers look to mortgage brokers for advice about how to finance what is, for many borrowers, the most valuable asset they will buy in a single transaction. And brokers not only give advice about what they think is best for the borrower, they submit the loan application on the borrower’s behalf and, to the extent the terms are negotiable, negotiate the terms of the loan for the borrower,” Mr Hayne wrote in the report.
At the moment, the bank pays a commission to the broker for each successful loan application. So, while a customer is relying on their broker for advice, the broker may have a financial incentive to act in a way contrary to that customer’s interests.
The report’s recommended changes will essentially flip that system on its head by making customers — not lenders — pay mortgage brokers’ fees. The upfront payment could be about $2000.
Advocates for the change argue customers already pay thousands for brokers’ services, as a hidden cost in their home loan, and they say this reform will add transparency to the process.
Mr Hayne also recommended a ban on trail commissions, which he described as “money for nothing”.
Trail commissions are payments from the bank to the broker that continue for the life of the loan. The bigger the loan, the bigger the trail commission — an arrangement that obviously gives brokers an incentive to act against the customers’ interests.
“Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?” Mr Hayne wrote.
The mortgage broker industry has reacted furiously to these changes, warning they could lead to higher interest rates.
“The borrower doesn’t win from any of this, all it’s done is increase the cost of someone getting a house,” Peter White, the Finance Brokers Association’s managing director, said.
But Mr Hayne pre-emptively countered that argument in his report, arguing the Netherlands implemented similar changes in 2013 and the mortgage broking industry “continued without significant adverse consequences”.
Finally, he recommended changing the law to require mortgage brokers to act in the best interests of borrowers. That can only be a good thing for customers.
2. IF YOU HAVE SUPERANNUATION
Mr Hayne wants each person to be “stapled” to a single default superannuation account.
“Because some employees, especially those who are young and working part time, do not make informed choices about their superannuation arrangements, default arrangements are essential,” he wrote.
Your default account is the one your employer pays super contributions into, unless you instruct them otherwise.
At the moment, workers who move from job to job are often “defaulted” into a new super account each time. And having multiple accounts at once means you’re paying more fees than you need to.
The current system does allow you to choose your own super fund when you start a new job, but in practice, many Australians leave their new employer to make the choice for them.
The report simply says “machinery should be developed for stapling a person to a single default fund”. The details still need to be worked out.
But essentially, the change will mean you will only default into a super account if you are new to the workforce or don’t already have one. Whenever you move jobs, you will stay “stapled” to that one default account.
There are other recommendations around superannuation as well.
If you use MySuper, accounts will be banned from deducting advice fees, unless it is intra-fund advice.
“If a member wants financial advice, the cost of that advice should be charged to and paid by the member directly,” Mr Hayne said.
The “hawking” — in other words, the unsolicited offer or sale — of superannuation will also be banned.
“Superannuation is not a product to be sold. It is a compulsory product,” the report stated.
3. IF YOU’RE A FARMER
There will be changes to the law to acknowledge the unique challengers faced by farm owners, whose property value can be affected drastically by natural disasters such as drought.
Banks will not be able to charge default interest for loans on land affected by drought.
The value of land will be assessed by someone “independent of loan origination, loan processing and loan decision processes” — in other words, someone other than the bank your loan came from.
If you live in a remote area, and particularly if you’re not adept at using English, banks will be required to help you access and undertake your banking.
And there will be a national scheme for farm debt mediation. Mediation with “experienced agricultural” financial advisers will be offered as soon as a loan is classified as distressed.
4. IF YOU HAVE INSURANCE
It is often a struggle to get insurance companies to pay up.
Forgot to mention something seemingly insignificant when you signed up? That could be used against you when you make a claim.
Mr Hayne addressed this problem with a recommendation to “replace the duty of disclosure with a duty to take reasonable care not to make a misrepresentation”.
So as long as you haven’t misrepresented your medical history, you should be OK.
The onus will fall on the insurance companies themselves to get all relevant information from you when it sells you the insurance policy, instead of later penalising you for forgetting something seemingly insignificant.
We’ve already mentioned “hawking” of superannuation will be banned. The same thing will happen with insurance. So those annoying cold calls you hate so much will be a thing of the past.
5. IF YOU FALL VICTIM TO BANKING MISCONDUCT
If you are wronged by a financial institution and have a court or tribunal find in your favour, but the company fails to compensate you — if it goes bankrupt and can’t pay, for example — there will be a “compensation scheme of last resort” to help you.
The scheme will be funded by the financial industry.
Meanwhile, the government has committed to pay $30 million to 300 people and small businesses who are still owed money from past cases.