Jenny McAllister (NSW, Australian Labor Party) Share this | Hansard source

I rise also to speak in support of the bill before this chamber and I note the important intent behind this bill, which is, quite simply, the protection of consumers. We need always to be looking at the interaction between consumers, the financial products that are on the market and the financial institutions which of those products.

In government we looked carefully at the costs that were accruing to consumers from inactive accounts—from those accounts which were sitting idle, accruing fees and seeing balances whittled away. The government has reviewed this and has come to the view that it would be preferable, on balance, to link the period before account transfer is triggered to seven years. Labor supports that proposal. The Australian Bankers Association has indicated that this would reduce the administration costs, the marketing costs and their complaints handling costs. Where we can get a good outcome for the industry and a good outcome for consumers, Labor is happy to support sensible proposals for reform.

As my colleague, Senator Dastyari, has pointed out, it is important to think carefully about the broader context in which consumers interact with the finance system. One of the observations I would make from my brief period on the Economics Committee is that it has become very clear to me that finance products are different from many other products which consumers might consider. By their nature, they are significantly more complex and, in particular, they are products which operate over time. For that reason consumers often find themselves experiencing significant difficulties in evaluating what benefits a particular product might confer upon them when compared to other products and what the best product for them and their family might be. There is, of course, a school of thought that says, 'Well, buyer, beware. It is up to consumers to make their own decisions.' We live in a society where consumers' ability to allocate the resources to the products and services that they desire is the foundation for efficient resource allocation and the best outcomes for society. That analysis is one that is broadly supported by both sides of this chamber, but we need to recognise that humans find in many cases difficulties and challenges.

We know more and more about human psychology and the challenges that individual consumers might have in making certain kinds of decisions. One of the things that has been drawn to our attention repeatedly in recent weeks on the Economics Committee is the significance of behavioural economics in explaining some of the odd things we start to see in financial markets, particularly when we are looking at retail products for ordinary households and for mum and dad consumers. Senator Dastyari spoke briefly about the credit card situation and the way that insights from behavioural economics manifest themselves in what has been described by a number of stakeholders as a failure of competition in that market. It is puzzling because a rational consumer would observe that they are currently paying very high rates on a particular credit card and that rational consumer might perhaps seek out alternative products which offer a better return on their investment and a better outcome for their family. But, for a range of reasons, that does not seem to happen in this particular market. Behavioural economics offers some explanations about why some consumers might not make good decisions in those circumstances.

Behavioural economics speaks to us about optimism bias—the idea in this case that, when people are evaluating products and rates, they do not consider rates carefully because they imagine themselves to be the kind of person who always pays their credit card debts off on time and thus will be the kind of person who never pays interest on any of their borrowings. But, of course, that optimism is misplaced. Many of the people who believe that to be so about themselves, who want to believe the best about themselves, in fact find that that optimism is misplaced; they do not pay off all of their debt each month and they do find themselves paying interest rates, sometimes very high interest rates.

It is related to another characteristic which is, of course, imperfect self-control. We know why people spend very large amounts of money on advertising, not just in the finance sector but in the retail sector more generally, and that is because it works. As humans we are most susceptible to many kinds of behavioural pushes and nudges that draw us to make decisions about enhancing our immediate wellbeing, even though it may not be in our long-term interest. That imperfect self-control, of course, leads to many people who have easy access to credit living beyond their means, accruing debts—in some cases modest, in other cases catastrophically large—which they are not able to pay off in the period required to avoid interest repayments. Again, people who find themselves in this situation will not be maximising the benefits for their family, despite the fact that they believe themselves to be making best efforts to do so.

There is another category of human failing that influences these markets also, and that is quite simply the transaction costs associated with acquiring information necessary to make good decisions. In the finance sector, where the information and the products themselves are already confusing—not least because they operate over time—the ability to acquire information that is useful to you as a consumer to make good decisions is sometimes dependent on an investment of a very large period of time and intellectual energy. To be honest, I know that in my family there is quite a lot going on. There are kids, there are bills, there is work, there is social life and, of course, for all of us in this chamber there are the political organisations that we belong to and the organisations in the community that we seek to support. In that context, spending the time to seek out information about the range of products that might be on the market, comparing them and making an evaluation about the extent to which they are suitable for you or your family, is an investment of time that many people find difficult to make.

One of the recommendations that we are seeing coming through very strongly from the Senate inquiry process is about the simplification of the information available to consumers when they are choosing products and making sure that comparing apples with apples is something that is simple to do, and making sure that people's eyes are drawn to the right thing when they are choosing a financial product, the thing that is most in their interest as consumers. What we do know from survey information is that, when people are making decisions about what products to choose, they are often focusing on entirely the wrong thing. They are looking at how it is going to go in terms of rewards points; they are considering whether or not it is a product that is sitting with their existing financial institution. They are, in most instances, not looking at the rate of interest payable and they are certainly not looking at the fine print about the penalty interest rates that might apply should they find themselves in financial difficulty. One of the things that we see in terms of recommendations are about greater information and better information to be made available to consumers by the providers of retail products.

Senator Dastyari spoke about the human costs of the failures of competition in this sector and the market failures which are delivering suboptimal outcomes for society. Some of the evidence that we have heard in the credit card inquiry, in the managed investment products inquiry, have been shocking indeed. I will admit that I have been close to tears hearing stories from some individuals whose lives have been comprehensively turned upside down by interactions with institutions and financial advisers who have served them poorly and served the interests of them and their families very poorly.