If the banks think the response to the Hayne royal commission signalled the end of the fell hand of government intervening in their business, then maybe they were wrong.
Josh Frydenberg’s decision to sool the ACCC onto the banks – predominantly the big four – for refusing three times this year to pass on in full an RBA rate cut is the most serious attempt to bring the banks to heel on rates since 2010.
Back then, treasurer Wayne Swan announced a package of reforms aimed at improving competition in the sector and helping people shop around.
The latter included the banning of exit fees on new mortgages and an examination into the feasibility of account portability.
Australia was at that time emerging from the global financial crisis, the RBA was increasing rates and the banks were increasing them by even more. Today, the RBA is cutting rates and the banks are failing to pass on the whole lot.
While the circumstances are different, the theme is the same. People are being ripped off and the government is talking tough.
“There’s absolutely no justification for any bank to raise its interest rates above the increases in the cash rate announced by the Reserve Bank,” said Swan.
On Sunday, Josh Frydenberg said the banks were profiteering, a charge levelled last week by Scott Morrison when he warned the banks “never learn”. Now we know what the Prime Minister was thinking.
Frydenberg will have the ACCC look at the way banks price their residential mortgages, taking into account their costs as well as their profits.
The inquiry will look at the “loyalty tax”, which is what the government and the ACCC believe is the practice of banks charging long-time customers higher rates than newcomers, safe in the knowledge the older customers could not be bothered with the hassle of shifting banks.
The banks should take heed of the term “loyalty tax”. It is the same description Frydenberg as Energy Minster, and his successor Angus Taylor, used when describing power companies in gouging customers who had neither the time, knowledge or inclination to shop around. That sector right now finds itself at the coal face of government intervention, with measures ranging from default prices to the big stick.
Given the importance of the banks to the economy, it’s hard to envisage such direct intervention on mortgages. Labor said last week it would be impractical to legislate to force full RBA rate cuts to be passed on.
It’s a populist government in a populist era. Who knows?
Otherwise the focus will be on removing impediments to customers switching banks.
Swan had a red hot go and this government is introducing consumer data rights to further aid switching.
It’s hard to see what else can be done, especially as the banks tend to take it in turns playing the villain on rates, making switching a pointless exercise.
The big test as to how seriously the banks will take this will come with the next RBA rate cut, which could come as early as Melbourne Cup day.
Will they pass it on in full, or call Frydenberg’s bluff?