Consumers are being warned about financial products that pose the greatest risk to their financial health in a damning new report.
British banking watchdog, the Financial Services Authority, has released a long list of where the potential dangers lie for individuals – with implications for all Australians.
Mortgages, savings and transactions accounts featured in the list. But the major danger named in the report was the sale of 'unsuitable financial products'. The FSA blamed a slow economy for pushing consumers towards products which are unsuitable for them, either in terms of risk, meeting their requirements or their understanding of what they are buying.
Martin Wheatley, FSA managing director, said: "Consumers rely on financial firms and their products to provide them with vital services – the means to run their lives. They need to be able to trust that the products they buy work for them and that they are getting a fair deal".
Australians are largely protected from unscrupulous practices because institutions here have statutory obligations under law that require responsible lending, according to the Australian Banker's Association (ABA).
Steven Münchenberg, chief executive of the ABA said: "A credit product supplied must be ‘not unsuitable’ for the customer so banks will consider each mortgage application and make an appropriate decision based on the customer’s financial situation".
Nevertheless Australians are required to take some responsibility for their choice of financial products, which means understanding the terms and conditions before signing on the dotted line.
How to get a fair deal
Free tools are readily available for consumers now; from online calculators and comparison websites to facts sheets, which make it easier to compare apples with apples before applying for a product.
Under the Federal Government's banking reform legislation Australian lenders must now provide a home loan facts sheet, on request. The standardised form highlights important information; such as the headline and comparison interest rates, fees and charges, the total financial cost over the life of the loan and information about the impact of rate changes.
Changes to credit cards are next; from July 1, 2012 credit card reform will mean a fairer deal for card holders. Facts sheets will be made available for all new cardholders and greater transparency about terms and conditions will simplify all card contracts.
Finally, consumers should always refer to the product disclosure statement before taking up any financial product and for more information contact your provider.