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An Australian Securities and Investments Commission (ASIC) review has uncovered significant fees faced by First Nations individuals, emphasising the need for banks to address the financial literacy gap within Indigenous communities.
The Better Banking for Indigenous Consumers Project found that certain individuals, including First Nations people, were paying up to $3,000 in overdraw fees annually in high-fee transaction accounts.
Despite being eligible for low-fee “basic” accounts, many Indigenous consumers were found to be in high-fee accounts, raising concerns about the effectiveness of banks’ processes in transferring eligible customers.
The review highlighted that the most common fee incurred by these consumers was the “overdraw” fee, which is not charged on low-fee accounts.
As a result, these consumers paid over $6 million in fees over a 12-month period, fees that could have been avoided had they been in low-fee accounts, ASIC said.
Chief executive of First Nations Foundation, Phil Usher, said: “It’s not that surprising, you’ve got a history of banks not acting as they should ethically.”
Mr Usher emphasised the importance of banks focusing on “getting the banking product right” for the communities they serve, rather than solely relying on reconciliation plans, NAIDOC events, and generic financial education programs.
According to Mr Usher, the banks’ financial education programs “miss the mark”.
“They go in and try to teach these communities about budgeting when there’s a real healing process that needs to happen first,” Mr Usher said.
“There’s this deep history of oppression from stolen wages being paid rations, to cashless debit cards where people haven’t been able to manage their money, and they just overlook all of that.
“That’s one of the things that’s really, really concerning.”
Mr Usher stressed the significance of education programs provided by Indigenous people can help bridge the financial literacy gap and empower First Nations communities.
“The definition of reconciliation is working with organisations like ours to support [communities] in their financial literacy education,” Mr Usher said.
ASIC urges banks to step up
ASIC Commissioner Danielle Press criticised the current ineffective processes employed by banks to transfer eligible customers.
“It’s unacceptable that we have found many consumers continuing to experience harm through transaction account fees, when banks know these people could be in low-fee accounts,” Ms Press said.
“ASIC wants to see action taken swiftly to change these customers to a low-fee option.
“We are asking banks when they will migrate eligible customers to low-fee accounts and whether they will remediate impacted customers.”
For example, the review found the majority of banks have migration rates as low as between 0.5 per cent and 3 per cent. One of the more effective processes only saw a 47 per cent migration rate.
“We are also asking what changes will be made to ensure tailored Indigenous services are effective. We will be monitoring these issues to ensure changes are made and will prepare a report on this project later in 2023,” she said.
ASIC has communicated its expectations and key findings to the banks, urging them to migrate all eligible transaction account customers in Indigenous Pilot locations and those receiving Abstudy payments to low-fee accounts automatically.
The regulatory body also called for the removal of fees when product alterations and changes in fee structures occur, the improvement of terms and conditions and account opening procedures to prevent future harm, remediation for affected customers, and procedural changes in tailored Indigenous services to better serve Indigenous customers.
Since ASIC’s review, one bank has taken positive steps to improve its TMDs including by removing overdraw, dishonour, account maintenance, and withdrawal fees from its transaction accounts for all customers. However, there is further work to be done.
[Related: New COBA code to protect vulnerable customers introduced]
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