CBA responds to ASIC’s investigation into school banking

CBA responds to ASIC’s investigation into school banking

The nation’s largest provider of school banking has responded to criticism that they’re taking advantage of ‘vulnerable’ children in an effort to grow their customer base.

The Commonwealth Bank disagreed with the Australian Securities and Investment Commission’s (ASIC) assessment of their school banking Dollarmites program, but did acknowledge some of the regulator’s findings.

“Our School Banking program reinforces the importance of regular savings, equips students with the knowledge of how to access and use a bank account, and provides structure for parents to support their children to save regularly,” Mark Jones said, general manager of the CBA’s customer service network.

“We are proud of the program and the positive impact it delivers.”

The bank provided a range of statistics -- selected from a variety of sources -- in defence of its program. These include:

  • Students with a bank account score 37 points higher in financial literacy than those who do not, according to research by the OECD
  • About 84 per cent of parents with children in programs like Dollarmites are satisfied, according to ASIC research.
  • 80 per cent of parents with a child in the Dollarmites program find it a valuable introduction to banking.

Four key findings, mostly damning

ASIC’s Report 676, a sweeping review into the benefits and risks of school banking programs, distilled four findings.

The most damning identified young children as ‘vulnerable’ consumers exposed to sophisticated advertising and marketing tactics.

Others included a failure to disclose that these programs help sign up new customers; that schools are encouraged to participate in the program because they receive millions in payments; and that there’s no proof the programs improve savings behaviour.

The review spanned two years and was comprehensive in scope. It included:

  • Feedback and documents from the ten school banking programs
  • Commissioned academic and consumer research
  • A public consultation yielding 1200 submissions
  • Consultation with state and territory education authorities on school banking policies and practices.

Not just CBA, but mostly

The review did not solely focus on Commonwealth Bank’s Dollarmites program. About 10 school programs were evaluated, and of them it was announced four are in the process of winding down after the regulator shared their findings. These include Bendigo, IMB, South West Credit and Northern Inland.

Commonwealth Bank’s Dollarmites is the largest school banking program in the country. It remains the last nationally available program, and dominates the market with a share of 92 per cent.

ASIC - school banking data.JPG

The bank paid about $2.1 million to 3629 schools participating in its dollarmite program in the financial year ending in 2019. Another $1.3 million was paid in the financial year ending in 2020, which was interrupted by the COVID-19 pandemic.

CBA is putting into practice an action plan

The Commonwealth Bank was briefed on the report’s findings ahead of its publication yesterday, 15 December, and is already at work putting into practice an action plan.

The action plan broadly aims to transition the Dollarmites program into a “more holistic financial education program”, by teaching children about “financial education uplift, digital experiences, and products and services”.

The reorienting of the program is said to bolster savings behaviours. In response to a critique from ASIC, these behaviours will be measured to demonstrate the program’s impact.

Commission payments to schools are being published online in a move to increase transparency. The data, already available for the most recent financial year, breaks the payments down by state.

The bank is also reevaluating its marketing material following the regulator’s assessment it’s being made available to ‘vulnerable’ children.

Calls for banks to be kicked out of schools

The findings in ASIC’s report led to RateCity calling on state and territory governments to ban school banking programs -- a move that’s already been undertaken by the Victorian government.

“School should be a safe environment where kids aren’t exposed to financial marketing and advertising,” Sally Tindall said, research director of RateCity.

“There are cash incentives for schools that sign students up, and it’s effective marketing for CBA which get customers, sometimes for life. There must be a better way to teach our kids about money that doesn’t involve kickbacks.”

A RateCity survey of 1000 people found school banking programs did not improve people’s financial confidence later in life. In some cases, the survey found it led to people fostering complacency and not shopping around for a better deal.

Just over half of Australians used a school banking program as a child, the survey found. Of them, about 34 per cent still banked with that same institution -- some even into their late 60s.

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