Money Bank fees eroding up to 10% of income in remote communities
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Bank fees can chew up as much as a 10th of the incomes of some Indigenous people living in remote areas, and banks are not actively promoting fee-free accounts to eligible customers, the royal commission heard on Tuesday.
Nathan Boyle, who works in the Australian Securities and Investments Commission's indigenous outreach program, told the royal commission in Darwin about the disproportionate impact of account-keeping fees, informal overdrafts, ATM fees, and dishonour fees on vulnerable consumers.
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Mr Boyle said because many of the consumers in remote Indigenous communities had low incomes, a fee of $10 or $20 was a significant share of their income. He gave the example of a customer being charged $20 a fortnight, which he said could be about 10 per cent of a low income earner's income.
"Informal" overdraft fees - for customers who overdraw their transaction accounts - were particularly problematic because many consumers did not understand they were going into debt and incurring fees when they overdrew their account, he said.
“People tend to not understand what an informal overdraft is,” Mr Boyle said.
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Because of the lower level of financial literacy, "dishonour" fees charged when there were insufficient funds to cover a direct debit were also a problem.
“Dishonour fees can have quite a significant impact on people in these communities,” Mr Boyle said.
Banks offer fee-free accounts for eligible customers, including those receiving welfare benefits.
However, Financial Counselling Australia's co-ordinator of financial capability, Lynda Edwards, said banks were “not very proactive” in promoting basic accounts, and were also reluctant to ask customers if they were Indigenous.
“The banks are really concerned that they don’t want to ask people to identify because they think they’re going to be seen as racist or not actually acting in the best interest of the client,” Ms Edwards said. “At the coal face, very few people are being told about basic bank accounts.”
Senior counsel assisting, Rowena Orr QC, told the hearing on Monday that Traditional Credit Union, which has 14 branches in remote Northern Territory communities and branches in Darwin, Katherine and Alice Springs, charged $5 a week for its "everyday account". Most of the credit union's income comes from fees, in contrast to most lenders that make more money from charging interest.
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Mr Boyle also described challenges faced by people in remote Indigenous communities in providing identification to banks.
Geographic isolation, poor mobile phone and internet coverage, and language difficulties meant some were unable to prove their identities without making a trip to a branch, which could mean travelling hundreds of kilometres.
“A proportion of Aboriginal and Torres Strait Islander people are completely excluded and don’t have access to even basic financial products,” Mr Boyle said.
Austrac, the government's anti-money laundering agency, had introduced new rules allowing banks dealing with remote consumers to use alternatives to the standard "100 points" system for verifying a customer's identity.
But while these changes were supported by banks at head office, the new processes were not always implemented on the ground, Mr Boyle said.
The hearing continues.
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