Bad Banks !

That banking Royal Commission disclosed a lot that is wrong with the Australian banking industry.  The good thing about the free enterprise system is that we have the opportunity to make a choice on which bank will handle our money, and usually the decision we make is because of the terms  they offer.

ME Bank is a banking institution that is rather new to the Australian scene.  It is owned by twenty-six union backed super funds and one of the reason many customers made that choice was because it offered draw back facilities on mortgage debt.

It was a comforting thought to many customers that if they repaid their mortgage above the minimum required, in an emergency they would be able to withdraw that overpaid balance to tide them over.  That was supposedly automatically available and did not require the permission of the bank.

When the Coronavirus hit jobs and sent the stock market into a dive ME bank had a policy change that was poorly communicated to customers.  That withdrawal option ceased and many people were suddenly without the ability to redraw to handle mounting personal bills.  It has been suggested that the bank was more concerned with its bottom line than their customers financial health.

The counsellors who oversee the banking industry have been warning that customer loyalty to a bank that has long served their needs is not reciprocal. In most cases, those repaying a home mortgage lodged with the same bank over many years are paying a much higher interest rate that that bank is offering to new customers.

It is a competitive market and banks are eager to attract new custom and to do that they need to be competitive with what rates they offer, but that is not extended to existing customers unless they approach the bank and ask to have their loan reviewed.  It is a sad fact of life that many do not make that effort and go on paying the same mortgage payment automatically, year after year.

Exactly the same disadvantage occurs in the insurance industry.  Inflation is blamed as the premium increases year after year but that premium is negotiable and the insurance industry increases its market share on a case by case individual basis.  New customers seeking quotes from several; insurance companies will experience a variety in the prices offering and haggling before signing up will often result in an even better offer.

The outcome is quite clear.  Loyalty is for losers.   Banks and insurance companies need to be regularly put to the comparison test.  The customer who seeks the best price for their banking and insurance needs is not being disloyal but merely following the first rule of good engineering.

It is always the squeaky wheel that is first to get the oil