The banks should be doing more to cater for low income earners as less than 30 per cent have switched to the low or no-fee transaction accounts that are on offer, according to the Brotherhood of St Laurence.
The organisation made a submission to the Senate Inquiry into competition in Australia’s banking sector, which Brotherhood of St Laurence’s manager of financial inclusion, Gerard Brody, was expected to present at Parliament House this morning.
In its submission, the Brotherhood of St Laurence pointed out that a survey of low income earners revealed that less than 30 per cent switched to low or no-fee transaction accounts due to the time, costs and uncertainty involved, a lack of knowledge about such accounts, and at times lower levels of financial literacy.
The group stated that banks needed to make the banking needs of low-income families a priority, increasing the accessibility to small loans that would go some way to preventing families from resorting to credit cards or disreputable, high-interest lenders.
Brody said the Senate inquiry’s focus should be broadened to include other areas of banking aside from competition in the mortgage market.
“In recent years, banks have shied away from providing consumer credit for small amounts, instead choosing to focus on more profitable services,” he said. “Lack of access to personal loans for under $5,000 is a real problem for many households, who rely on such loans to acquire assets and make necessary expenditures, like fixing the family car or buying school textbooks for their children. Often, in sheer desperation, these households are left with no option but to enter into complex contracts with unregulated, high interest-charging money lenders, or to put day-to-day expenses on a credit card.”
Brody stated that these products were dangerous and could place households in a debt trap that could be almost impossible to escape. The Brotherhood of St Laurence stated in its submission that if the free market could not deliver better services to low income earners, the Government should consider increasing funding.
In its submission, the Brotherhood of St Laurence also supported measures to increase transparency in the setting of loan interest rates and encouraged the Reserve Bank of Australia to publish the cost of capital of Australian banks.
