Banking Royal Commission Prompts Calls for Greater Financial Counselling Support
Wednesday, 6th February 2019 at 4:35 pm
Charities are calling for increased funding for financial counselling services to prevent vulnerable people being preyed upon by “unethical bankers”, in wake of damning findings from the banking royal commission.
Commissioner Kenneth Hayne’s final report made 76 recommendations related to the banking, superannuation and financial services industry, after the inquiry uncovered extensive misconduct in the sector.
Hayne said an “asymmetry of knowledge and power between consumers and financial services entities” was evident throughout the inquiry, and noted that people were struggling with more complex financial dealings like investments and superannuation.
He added that financial counselling services performed very valuable work and were a “necessity to the community”.
“They add strength to customers who are otherwise disadvantaged in disputes with financial services entities. In that sense, their role in the financial services sector is complementary to the broader recommendations in this report that are designed to hold entities to account,” Hayne said in the report.
The report said reforms to the law, and to practices of regulators and entities, would not eliminate that need as there would always be vulnerable people with a poor understanding of financial services who used these services.
It also said financial counselling services frequently struggled to meet demand, which was increasing.
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In wake of these findings, charities have called on the government to increase funding to financial counselling services.
The Western Australian Council of Social Service (WACOSS) CEO Louise Giolitto said protecting consumers, particularly those experiencing hardship, from being preyed upon by unethical bankers required easy and free access to financial counselling and community legal services.
“If the government wants to prevent this situation from happening again, they must commit to providing the necessary funding to make those services readily available to everyone who needs them,” Giolitto said.
The Consumer Credit Legal Service of Western Australia echoed this call, with the charity’s managing solicitor, Gemma Mitchell, noting that the royal commission heard story after story about the banks breaching responsible lending practices that left many consumers in financial hardship.
The inquiry heard evidence of self-identified gambling addicts being offered increased credit card limits, account fees being charged to people who were deceased, and irresponsible lending to people who did not have capacity to repay the loans.
“What is needed now is swift implementation of the reforms, in consultation with community and consumer groups, before they have had the chance to be watered down by industry lobbyists,” Mitchell said.
Celia Dufall, a principal officer at Financial Counselling Network, added that financial counsellors had seen the impact of these “unscrupulous lending practices”.
“We don’t anticipate demand will ease anytime soon as our financial counsellors currently turn away as many people as they’re able to see,” Dufall said.
“We’re also aware that there are many more people who are struggling with mortgage stress or financial debt but are unaware of the financial counselling or community legal assistance services available to assist them.”
"Earlier today the Governor-General, His Excellency General Sir Peter Cosgrove… received the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry" #auspol @SBSNews pic.twitter.com/ezYzr3Ypqi
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Financial counselling services are primarily federal and state government funded, with pro bono and other donations also a contributor.
Some existing funding comes from other arrangements such as community benefit payments under enforceable undertakings given to the Australian Securities and Investments Commission.
The report said such funding was “one-off” in nature, and warned reliance on these uncertain funding sources presented a longer-term challenge for community-based services to continue operating.
The inquiry heard proposals for other models of funding, such as an industry levy to fund financial counselling and consumer legal services, which advocates say is a model operating effectively in the UK.
Hayne offered no views about the most appropriate sources or mix of funding, but said the need for stable funding for financial counselling services was clear and called for “careful consideration” of the best option.
The Australian Financial Complaints Authority (AFCA) welcomed the royal commission’s recommendation that financial counselling services were appropriately funded now and into the future.
AFCA chief executive and chief ombudsman, David Locke, told Pro Bono News he was very pleased that Hayne agreed financial counsellors played an essential role in the community.
He said AFCA was getting around 11,000 calls a month, with many people in desperate need of advice about financial hardship and their financial situation.
“Financial counsellors provide a myriad of services to the community, including promoting financial capability, reducing the risk of vulnerable and disadvantaged consumers being targeted by predatory businesses, and helping consumers to resolve financial problems and issues,” Locke said.
“Their services are invaluable and it is essential that a sustainable funding model be developed in support of financial counsellors.”
In its response to the final report, the federal government said it agreed with Hayne’s suggestion for predictable and stable funding for counselling services.
One of the #BankingRC recommendations highlights the need for stable and predictable funding for financial counselling and legal assistance. The Federal Government has accepted the rec and will conduct an immediate review. Welcome news!
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It said financial counselling services played an important role in supporting consumers and acknowledged the challenges around increasing demand, inconsistent and short term grant-based funding streams, and fragmented service delivery.
The government has committed to a Department of Social Services-led review of the coordination and funding of financial counselling services, in consultation with Treasury and the Department of the Prime Minister and Cabinet.
“The review will consider gaps and overlaps in current services and the adequacy of, and appropriate delivery models for, funding,” the government said.