Big 4 Banks face government review

Big 4 Banks face government review

This week will be a big one for the heads of Australia’s Big Four banks who will be facing the Federal Parliament’s House of Representatives Economic Committee for a review of the way in which they balance the needs of customers, shareholders and the broader community.

The banks have been embroiled in various scandals over the past year including those involving life insurance policies and their failure to pass cash rate cuts on to home loan borrowers. There have been calls from the Labour party to conduct a Royal Commission into the banking sector and this review will give the banks a chance to try and prove that it would not be necessary. 

The review will take place over the next three days with the head of each major bank having their chance to explain their position. It is hoped that this will give the public a chance to understand some of the banking industry’s decisions that have recently been called into question. 

The four main topics highlighted for discussion by the committee are the international and domestic market developments that relate to the Australian banking sector; developments in prudential regulation and how these will affect Australian banks; the cost of funds impacts on margins and the basis for bank pricing decisions; and how banks are currently responding to previously raised issues such as enhancing consumer protection, government reforms and actions by regulators.

There’s a lot of material for the review to get through over three days and for customers it may be hard to follow exactly what implications these discussions will have on their bottom line until the reviews conclusion.

Borrowers and savers alike no doubt have their own grievances to air with the Big 4. Also, with Australia currently having the largest amount of household debt of any developed nation, and most of this debt being tied up with the Big 4 Banks, it’s fair to say that making sure we have transparency and regulation across the sector is absolutely necessary.

For customers around the nation, answers to questions like what sort of commission are bank workers getting for selling us loans and why won’t the bank pass us our full rate cut on our home loans but savers get their interest rates slashed repeatedly, will be eagerly awaited.

This graph from the ABC also shows a worrying trend in that our personal debt, far from being paid off, is being shifted into other banking products, most likely to be paid back over longer terms.

And while the amount of debt we take on may be considered our own “fault” what about the way in which new credit cards, credit increases and other such banking products a marketed to vulnerable customers?

The next three days will hopefully provide some insights into the way the banks view these issues and what customers can expect going forward.

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Where can I get a personal loan?

The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:

There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.

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In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

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It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

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Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

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A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.

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Some lenders are able to approve applications with little documentation and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.

How do I find out my credit rating/score?

You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.