Royal Commission and Interim Report
On the 28th of September the annual Interim Report was published by The Royal Commission, revealing a damning assessment of the nation’s financial institutions. It was noted that this financial misconduct had continued unpunished and, when the “misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done.”
Examples of misconduct include;
- Interest rigging by ANZ, NAB and CBA.
- CBA charging deceased clients’ fees for planning advise. At least five CBA planners admitted to knowingly doing this.
- Fines and customer remediation programs are expected to cost the “big four” another $1.3 billion through to the 2020 financial year. It should be noted however, that all 4 major banks are continuing to make profits despite fines and customer remediation programs.
Commissioner Hayne’s response to the banking structure acknowledges that;
“Too often, the answer seems to be greed – the pursuit of short term profit at the expense of basic standards of honesty. How else is charging continuing advice fees to the dead to be explained?”
But how does the report effect the average Australian?
Put simply, there will be much tighter banking regulations to ensure that misconduct does not continue. Following the interim report, banks are having to take extra measures to protect the consumer and take full responsibility to make things right for their customers.
Although this will prevent banks from exploiting the average Australian, it is clear that tighter bank legislations mean having a home or personal loan approved may become much harder.
Legislative Bank Changes
After the Interim Report was published, there was immediate public policy changes by the major banking corporations. The changes primarily are to protect customers and simplify the banking system so it is transparent to all who are using it. However, as mentioned before they will have undoubtable effects on their customers.
The Key Changes for Customers
A compassionate and immediate change was a promise to take extra care of vulnerable customers and to train staff to help, along with ensuring proactive contact with customers deemed at risk of financial difficulty. After understanding the financial exploitation of many laid out in the Interim Report, it is clear that these promises are essential to regain financial trust.
Further measures to prevent exploitation include regular assessments on a customer’s ability to repay their credit card limit within five years. As well as active promotion of affordable banking products. Many could be effected by tighter regulations over what products they are considered fit to access.
Other technical reforms include delays in offering add-on insurance for credit cards and personal loans, along with abolishing fees and commission on lenders mortgage insurance, ensuring people are not spending money on banking products they simply do not need.
The Key Changes for Guarantors
The majority of legislative bank changes made regarding guarantors are to ensure they are protected at a higher standard than before. New protections have been created to ensure that guarantors understand their obligations. These include a cooling off period, or the ability to seek independent legal advice to ensure they understand what they are signing.
Several more changes to protect the guarantor include notifying guarantors when borrowers get into financial difficulty, or their circumstances change. The bank will now initially attempt to receive assets from the borrower before starting action against the guarantor to repay the loan. This undoubtedly makes becoming and remaining a guarantor a much safer process than in previous years.
Government Legislative Changes
Throughout 2018 there have been several federal and proposed changes to both income tax and superannuation, as well as proposed changes by Labor regarding negative gearing. It depends on personal circumstance as to how these changes may affect each individual citizen.
Income Tax Changes
These changes have been slight, and generally only effect middle to higher income earners.
- A Low and Middle Income Tax Offset (LAMITO) has been introduced from the 1st of July 2018, and will remain until the 30th of June 2020. This will be available for Australians with taxable income of less than $125,333.
- Raising of the marginal tax threshold for the 32.5% tax bracket. From the 1st of July 2018, the marginal tax threshold for the 32.5% bracket is now $90,000 rather than the $87,000 previously.
- Medicare Levy will remain at 2%. Previously the Federal government announced that the Medicare levy would increase to 2.5%. However this is no longer going forward.
Superannuation Changes
There have been no tangible superannuation changes within 2018. The Superannuation Guarantee (SG) will remain at 9.5% for the 2018/2019 financial year as previously in 2017. However there have been several proposed changes within the Federal budget of 2018/2019.
The three major changes cover;
- Fees: A cap on admin and investment fees on low balance super accounts (with less than $6,000). As well as a ban on all super fund exit fees.
- Insurance: Insurance within super to be opt-in rather than default for members with balances of less than $6,000, members under 25 and whose accounts have not received a contribution for 13 months.
- Self-Managed Super Funds: The maximum number of trustees allowed in a self-managed super fund will be raised from four to six.