The Gillard Government will give Australians the freedom to switch deposit accounts with the stroke of a pen, making it much easier to walk down the road and get a better deal on their hard-earned savings.
The new 'tick and flick' service will remove the burden of having to change the details of automatic debit and credit transactions.
Instead, customers will sign just one form that authorises their new financial institution to do all the heavy lifting for them. The new institution will arrange the transfer of all automatic transactions linked to the customer's account and inform associated creditors and debtors about the new account details.
This initiative will give consumers the power to easily switch to another bank, building society or credit union if their existing institution isn't providing good value and service.
It will take the headache out of switching bank accounts, encouraging consumers to seek out the best deal on their savings.
In December last year, I commissioned former Reserve Bank Governor Bernie Fraser to investigate options for greater account transferability and this new initiative has been recommended by Mr Fraser as part of that review.
Today I release Mr Fraser's report, Banking Services: Cost-Effective Switching Arrangements, and accept his recommendations in full. I sincerely thank Mr Fraser for his hard work since the start of the year. The report can be found at http://www.bankingreforms.gov.au
Mr Fraser found full account number portability, which would allow consumers to keep their account number when they switched institutions, would not deliver enough benefits to justify the huge costs it would impose on business and consumers.
The Government will establish a Treasury-led working party including industry, consumer groups and other stakeholders to finalise the details of the new service to be introduced on 1 July 2012, including whether it can be extended to small business customers.
This important reform builds on the Government's ban of mortgage exit fees and delivers another key element of the Competitive and Sustainable Banking System package I announced in December last year. The new deposit account switching service will be reviewed after two years.
These new measures are all part of the Government's reforms to keep our banking system strong and make it work for families, not against them.
I'm also pleased to announce today the introduction of a mandatory one-page fact sheet to help consumers understand the costs and benefits of lenders' mortgage insurance when they take out a home loan.
The aim is to allow consumers to compare quotes side-by-side, including the difference in premiums and rebate schedules, helping them get the deal that's right for them.
This will help home buyers compare apples with apples when it comes to shopping for lenders' mortgage insurance, which is critical for making the dream of homeownership a reality for many Australian families, particularly first-home buyers.
Treasury has advised against the introduction of a scheme to allow the transfer of lenders' mortgage insurance between lenders because it would be expensive, extremely complex to implement and administer, and would likely benefit less than 1 per cent of all borrowers.
The Government's new National e-Conveyancing System (NECS) will provide a single online portal for all parties to a property transaction.
This will help reduce the costs associated with loan applications, property valuations, settlements, property title searches, and registering mortgages. These costs can add up to as much as $6,500 every time a borrower switches mortgages.
The Government is currently working through the Council of Australian Governments to introduce NECS in early 2013.
I have tasked the Australian Securities and Investments Commission with ensuring that the savings generated by NECS are passed on by lenders to consumers.
In December last year, I announced the Government would consider the feasibility of a central mortgage registry to minimise the cost of discharging and re-establishing mortgages. Treasury advises that NECS will be a more effective way to reduce the costs associated with refinancing a home loan.
Today's announcements are another significant step in delivering on the Government's Competitive and Sustainable Banking System reform package.
21 August 2011