Government pushing banks to offer more debt solution options

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) February 13, 2012 --

Stafford, QLD – February 13, 2012. There has been widespread perception by many Australians that they’re being gouged by the major banks. The familiar refrain is that the banks are quick to raise interest rates when the Reserve Bank raises the cash rate, but painfully slow to lower their rates when the Reserve Bank lowers its rates. The banks have argued that their overseas funding costs have risen and have been slowly trying to create an understanding that what the Reserve Bank does is only one factor in their decision. The recent decision by Westpac and ANZ to raise their mortgage interest rates after the Reserve had kept its rates steady is part of this attempt.

In the midst of this behavior, the Government has been applying pressure on the banks to lower their rates in line with Reserve Bank decisions. It understands that many families are under pressure from household debt and that they’re running out of debt solution options. This is especially the case because a tougher lending criterion has made it difficult for people to re-finance or otherwise borrow their way out.

So what can the Government really do? Bashing the bank in the media may not do much. It may cause some banks to be cautious with raising their politically sensitive mortgage interest rates, but recoup their earnings through hiking less contentious credit card, personal loan and business loan rates. The danger for small businesses in that situation is that it may reduce their ability to obtain credit, which in turn could put jobs at risks. So this might not be the best approach to securing debt relief for the wider public.

What other debt solutions are there?

As in most economic situations, the best way to get a better deal for the buying public is ensuring more competition. Currently, non-bank lenders find it difficult to access cheaper foreign funding and so are at a disadvantage in being able to compete with the major banks. This is one area the Government may be able to look at more closely. Additionally, it might seek to make it easier for large foreign entrants to enter and compete in the Australian marketplace.

On a personal level, people also need to shop around for debt solutions. They should use a mortgage broker to compare all the options open to them and switch to a better deal if one is available. The Government has recently introduced legislation to make switching loans much cheaper and more convenient so that is one option to consider. They might also look at a solutions for debt or a debt agreement to deal with their unsecured debts such as credit cards and personal loans. This can be an effective form of debt relief that leaves more money in their pocket to deal with the other expenses they face.

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