Banks’ coronavirus loan assistance falls short, argues Choice
“Unprecedented” is a word no-one wants to hear anymore, but it’s a fair description of the situation millions of Australians found themselves in in March this year, as whole industries were shut, virtually overnight, to stem the spread of coronavirus.
Almost immediately, Australia’s banks offered to stop repayments on loans, and by the end of May, there were $266 billion of them on hold.
But have they done enough to help the millions of customers affected by the economic fallout of COVID-19?
Social worker Jessie Dunphy doesn’t think so.
“You scroll through Facebook and the bank has all these ads about helping people, ‘We’ll look after you’, ‘Contact us.’ And it just doesn’t ring true to me,” she said.
“It’s just not what our experience has been.
“I’m really worried for lots of Australians out there who aren’t as fortunate as myself that are really, really struggling and the bank’s just making money off them, basically.”
Currently on maternity leave, the mother of wo used the first lockdown to examine the family’s finances.
After receiving an email offering to lower her Westpac home loan interest rate to the one available to new customers, she grabbed it.
The mass-emailed offer was simple: agree over email, agree during a phone call and the lower rate would be applied. When it wasn’t, Ms Dunphy called again.
It was only then that she learnt the offer didn’t apply to fixed home loan customers.
“And then Westpac says to us, ‘Oh, no, no, no. Actually you can have the current rate,'” she recalled.
“‘But if you want to, you’re going to have to pay the breaking fee, which is going to be $13,000.'”
Shocked, and with less than a year to run on the fixed term, Ms Dunphy declined.
“That’s how they’re helping,” she said.
“They’re making money off people like my family, the people who are struggling.”
A Westpac spokesperson said the bank can’t comment on individual customers but was supporting people like Ms Dunphy.
“Fixed-rate home loans offer customers the certainty of a set interest rate for a period of their choice, usually between one to five years,” the bank responded.
“When a customer fixes their home loan interest rate, they are advised there may be a break cost applied if they choose to end the term earlier than the agreed period.
“Westpac looks at each customer’s situation on a case-by-case basis. This may include reducing or waiving break costs if a customer is experiencing financial hardship.”
Close to a million loans on hold
Consumer advocacy organisation Choice welcomed the rapid roll-out of assistance in March, but now chief executive Alan Kirkland thinks the shovel needs to be replaced with a scalpel.
“What’s really important in the coming months is more personalised approaches,” he said.
“Having conversations with people, understanding their circumstances and helping them to understand the best options for them.
“Because a one-size-fits-all approach, as we’ve seen up to now, will actually leave some people in a much worse situation than what they should be in.”
The most substantial assistance from the banking industry has been the offer of loan-repayment holidays.
Payments on around half-a-million mortgages — that’s about one-in-10 of all home loans in the nation — worth more than $190 billion, were frozen by the end of May.
Add in small business, car and other loans and the amount on hold rises to around 900,000 agreements worth about $266 billion from Australia’s 20 biggest banks and mutuals.
But it’s a payment freeze — and doesn’t pause interest accruing on the debts. In most cases, the loans are being extended with extra interest loaded onto the total owed.
With a cliff of problems looming in September, Australian Banking Association chief executive Anna Bligh last month announced a further four-month extension to loan deferrals for those still in need, subject to negotiation between customers and institutions.
“Those who are able to repay their loans will resume doing so, which is in the best interests of those customers and allows support to be directed to those who need it,” she said.
“Encouragingly, many customers have already chosen to resume making repayments.”
Banks and customers ‘heavily aligned’
With increased administration costs, veteran banking analyst Brett Le Mesurier said banks were scarcely profiting from the gesture.
“While they might be making some money, they don’t make a lot out of it,” he explained.
“But it does stop the loans being deferred from ‘running off’, basically.”
Mr Le Mesurier, of Shaw and Partners, said the banks frantically had to move staff and resources during the crisis, pivoting from selling and processing loans to protecting them.
“No-one’s actually trying to be too harsh on customers at the moment,” he argued.
“It’s in the banks’ interests, in the regulator’s interest, to have as many people ‘on foot’ for as long as possible, of course as long as they can ultimately service their loan obligations.”
Choice examined the COVID assistance packages of the big four banks. Only Westpac and NAB scraped over the line with a mark above 50 per cent. One key issue was sky-high credit card interest rates.
“All of the major banks have got credit card interest rates on their top cards of around 20 per cent or more,” Alan Kirkwood said, reserving particular criticism for ANZ increasing the rates on some credit cards over the past four years, even as the Reserve Bank of Australia slashed its official cash rate to record lows.
“Lots of disadvantaged people rely more on products like personal loans and credit cards, particularly when times are tough,” he said.
“If the banks really want to help people in trouble, then we need to see action on these outrageous credit card rates.”
Choice’s chief executive said now, more than ever, banks needed to go beyond following the law, to really know their customers.
“To use the data that they’ve got access to, to identify the people who are in genuine financial hardship and reach out to them, have individual conversations and help them understand what issues [exist] for them,” he said.
“We need to treat customers like people, not customers.”
“Customers who have been financially impacted by COVID-19 can also have their home loan repayments deferred for three months, with a further three months on review.”
Mr Le Mesurier said the banks were working hard amid a rapidly changing environment that had put huge pressure on staff and systems, with problems that traversed state and international borders.
“In this case, the best outcome is not only for [banks], but also for the customers,” he said. “The interests are very heavily aligned.”
Australia’s banks suffered a massive hit to their reputations as the royal commission exposed crimes and disgraceful conduct across the industry, with boards and chief executives often aware of the problems.
Given that recent history, this crisis offers the banks a chance to demonstrate they can be trusted.
But for Jessie Dunphy, it feels too little too late.
“At a time like this, if the banks cared about Australians they’d help out families like mine,” she said.
“If they wanted to actually help, they’d be dropping some of these fees as a good gesture, to help people, to help the economy. It’s a dangerous game they’re playing.”