Tag: ACCC

What The Banks’ Memos Say

An excellent summary of the ACCC’s report, which we discussed yesterday, from MPA’s Otiena Ellwand.  It confirms the banks were well aware of the opportunity to capture substantial economic benefit of hundreds of millions of dollars in additional revenue, and a quest to meet financial targets.

The ACCC’s interim report into residential mortgage pricing reveals the “lack of transparency” around how the ‘inquiry banks’ – ANZ, CBA, Macquarie, NAB and Westpac— make these decisions.

The regulator found a “lack of vigorous price competition” between the big four banks in particular, with negative public reaction being a major concern.

The ACCC examined thousands of internal documents for this report. This is what they reveal:

1. Banks raised rates to reach internal performance targets:

The ACCC found that achieving profit and/or revenue-related performance targets affected the banks’ decisions on interest rates.

For example, concern about a shortfall relative to target was a key factor in two inquiry banks increasing headline variable interest rates in March 2017.

Tweaking the headline variable interest rates may be in the banks’ favour because it affects both new and existing borrowers, so even small increases can have a significant impact on revenue, the report found. And the majority of existing borrowers would likely not be aware of small changes in rates and would therefore be unlikely to switch.

2. A shared interest in avoiding disruption:

The banks’ pricing behaviour “appears consistent with ‘accommodating’ a shared interest in avoiding disruption of mutually beneficial pricing outcomes”, the ACCC found.

Instead of trying to increase market share by offering the lowest interest rates, the big four banks were mainly preoccupied and concerned with each other when making pricing decisions.

In fact, in late 2016 and early 2017, two of the big four banks each adopted pricing strategies aimed at reducing discounting in the market even though this was potentially costly for them if the other majors didn’t follow suit.

3. Reputation is everything:

The banks are particularly attentive to when and how they explain interest rate decisions to the public, and strong public reaction can even put pricing decisions on hold.

One inquiry bank decided to defer a rate rise due to the reputational impact.

Another bank’s internal document noted that changing the headline variable interest rate without an easily understood reason or trigger event could have the “potential to attract a lot more attention and focus” from the public.

In an email discussion among a group of bank executives, one leader noted that it had not made the case for repricing its back book.

“I am also very conscious that we suspect that many first home buyers, unable to afford owner occupier homes, have instead have [sic] bought [an] investment property to take advantage of the low interest rates, tax break and keep a foot on the housing market. I don’t think that this would play well from a customer or community stand point,” the executive wrote.

4. Not just about APRA:

In July 2015, all of the big four banks attributed interest rate increases to APRA’s limits on investor lending.

However, one inquiry bank said in an internal memo that the “substantial economic benefit” of hundreds of millions of dollars in additional revenue was a consideration in its decision.

Where does this ACCC report come from?

Back in June 2017, the banks indicated that rate increases were primarily due to APRA’s regulatory requirements, but once under further scrutiny they admitted that other factors contributed to the decision, including profitability.

In December, the ACCC was called on by the House of Representatives Standing Committee on Economics to examine the banks’ decisions to increase rates for existing customers despite APRA’s speed limit only targeting new borrowers.

The investigation falls under the ACCC’s present enquiry into residential mortgage products, which was established to monitor price decisions following the introduction of the bank levy.

ACCC takes action against Equifax, formerly Veda

The ACCC has instituted proceedings in the Federal Court against credit reporting body, Equifax Pty Ltd (formerly Veda Advantage Pty Ltd), alleging breaches of the Australian Consumer Law (ACL).

The ACCC alleges that from June 2013 to March 2017, Equifax made a range of false or misleading representations to consumers, including that its paid credit reports were more comprehensive than the free reports, when they were not.

Equifax also allegedly represented that consumers had to buy credit reporting packages for it to correct information held about them, or to do so quicker. In fact, Equifax was required by law to take reasonable steps to correct the information in response to a consumer’s request for free.

In addition, the ACCC alleges that Equifax represented that there was a one-off fee for its credit reporting services, when its agreement provided that customer’s subscriptions to the services automatically renewed annually unless the consumer opted out in advance. We allege this renewal term is an unfair contract term, which is void under the ACL.

In all the circumstances, it is alleged that Equifax acted unconscionably in its dealings with vulnerable consumers including by making false or misleading representations, and using unfair tactics and undue pressure when dealing with people in financial hardship.

“We allege that Equifax acted unconscionably in selling its fee-based credit reporting services to vulnerable consumers, who were often in difficult financial circumstances,” ACCC Commissioner Sarah Court said.

“We allege that Equifax told people they needed to buy credit reporting services from them in situations when they did not. It is important for consumers to know they have the legal right to obtain their credit report and to correct any wrong information for free.”

By law, consumers are entitled to access their credit reporting information for free once a year, or if they have applied for, and been refused, credit within the past 90 days, or where the request for access relates to a decision by a credit reporting body or a credit provider to correct information included in the credit report.

To find out how to access your free credit report, visit the Office of the Australian Information Commissioner’s webpage

Mortgage pricing not strongly competitive

The opaque pricing of discounts offered on residential mortgage rates makes it difficult for customers to make informed choices and disadvantages borrowers who do not regularly review their choice of lender, a report by the ACCC has found.

The ACCC’s Residential Mortgage Price Inquiry is monitoring the prices charged by the five banks affected by the Government’s Major Bank Levy: Australia and New Zealand Banking Group Limited (ANZ), Commonwealth Bank of Australia (CBA), Macquarie Bank Limited, National Australia Bank Limited (NAB), and Westpac Banking Corporation.

The Inquiry’s interim report, out today, reveals signs of less-than-vigorous price competition, especially between the big four banks.

“We do not often see the big four banks vying to offer borrowers the lowest interest rates. Their pricing behaviour seems more accommodating and consistent with maintaining current positions,” ACCC Chairman Rod Sims said.

“We have seen various references to not wanting to ‘lead the market down’, to have rates that are ‘mid-ranked’ and to ‘maintain orderly market conduct’.”

The ACCC has found that discounts are a major factor in the interest rates customers are paying. Banks offer varying levels of discounts, both advertised and discretionary, but the latter are not always transparent to consumers.

The criteria used by different banks for determining the total discount offered to borrowers includes many factors, such as the individual borrower’s characteristics, their value or potential value to the bank, and their ability to negotiate.

During the two years to June 2017, the average discount across the five banks under review on variable interest rate loans was 78-139 basis points off the relevant headline interest rate.

“The discounting by the big banks lacks transparency and it’s almost impossible for customers to obtain accurate interest rate comparisons without investing a great deal of time and effort. But the potential savings from these discounts are immense,” Mr Sims said.

The report also found the average interest rates paid for basic or ‘no frills’ loans are often higher than for standard loans at the same bank.

“We think many customers who opted for ‘basic’ or ‘no frills’ loans thinking they are saving money would be surprised to learn they might actually be paying more.”

The report’s other key findings include:

  • existing residential mortgage borrowers paid significantly higher interest rates than new borrowers at the same bank. Between 30 June 2015 and 30 June 2017, existing borrowers on standard variable interest rate residential mortgages at the big four banks were paying up to 32 basis points more (on average) than new borrowers,
  • the large majority of borrowers are paying lower interest rates than the relevant headline interest rate, and
  • the bank with the lowest headline rate is not always the bank with the lowest average rate paid by borrowers.

“These findings suggest that many bank customers would likely benefit from either switching mortgage providers, or approaching their bank for a better rate and indicating they are prepared to switch to get one,” Mr Sims said.

“It seems existing customers are not being rewarded for their loyalty; in fact they are worse off. For example on a $375,000 residential mortgage, a new borrower paying an interest rate that was 32 basis points lower would save approximately $1200 in interest over the first year of a loan.”

“This is a significant saving,” Mr Sims said.

In addition to examining the way banks make their mortgage pricing decisions, the ACCC’s Residential Mortgage Pricing Inquiry final report will detail if the banks have adjusted their pricing in response to the Government’s Major Bank Levy.

As at November 2017, the five banks stated no specific decisions had been made to adjust residential mortgage prices in response to the Major Bank Levy.

Indeed, one bank considered whether the costs could be passed on to customers and suppliers at a range of different time periods, including after the end of the ACCC inquiry.

The ACCC’s final report will examine these issues further.

Background

On 9 May 2017 the Treasurer, the Hon. Scott Morrison MP, issued a direction to the ACCC to inquire into prices charged or proposed to be charged by Authorised Deposit-taking Institutions (ADIs) affected by the Major Bank Levy in relation to the provision of residential mortgage products in the banking industry in Australia. The Major Bank Levy came into effect from 1 July 2017, and the Inquiry will consider residential mortgage prices for the period 9 May 2017 until 30 June 2018.

The ACCC’s interim report examines the motivations, influences, and processes behind the residential mortgage pricing decisions of the five banks during the period 1 July 2015 to 30 June 2017.

The ACCC is reporting on this period in order to have a baseline against which to compare pricing decisions for the review period set by the Treasurer.

The ACCC will continue to examine the banks’ mortgage pricing decisions and how they have dealt with the Major Bank Levy through to 30 June 2018.

The ACCC has used its compulsory information gathering powers to obtain documents and data from the five banks on their pricing of residential mortgage products. The ACCC has supplemented its analysis of the documents and data supplied by the five banks with data from the Reserve Bank of Australia (RBA), Australian Prudential Regulation Authority (APRA) and the Australian Bureau of Statistics (ABS).

This inquiry is the first task of the ACCC’s Financial Services Unit (FSU), which was formed as a permanent unit during 2017 following a commitment of continuing funding by the Australian Government in the 2017-18 Budget. Alongside the ACCC’s role in promoting competition in financial services through its enforcement, infrastructure regulation, open banking, and mergers and adjudication work, the FSU will monitor and promote competition in Australia’s financial services sector by assessing competition issues, undertaking market studies, and reporting regularly on emerging issues and trends in the sector.

ACCC Seek Views on News and Digital Platforms Inquiry

The ACCC says is looking forward to hearing the views of consumers, media organisations, digital platforms, advertising agencies and advertisers after today outlining the key issues it will be considering in its digital platforms inquiry.

The ACCC is seeking submissions in response to its issues paper by 3 April 2018 and will issue a preliminary report into its findings in December 2018.

As part of its public inquiry into the impact of digital platforms on media and advertising markets in Australia, the ACCC is seeking feedback on:

  • Whether digital platforms have bargaining power in their dealings with media content creators, advertisers or consumers and the implications of that bargaining power.
  • Whether digital platforms have impacted media organisations’ ability to fund and produce quality news and journalistic content for Australians
  • How technological change and digital platforms have changed the media and advertising services markets, and the way consumers access news
  • The extent to which consumers understand what data is being collected about them by digital platforms, and how this information is used
  • How the use of algorithms affects the presentation of news for digital platform users.

“Digital platforms like Google and Facebook are part of the sweeping technological and cultural changes overhauling the media landscape in Australia and globally,” ACCC Chairman Rod Sims said.

“While these technological changes have brought many benefits for consumers, this inquiry will have a particular focus on examining whether the changes affect the quality and range of news supplied to Australian consumers.”

“Considering the longer term impacts of digital platforms and the ability of traditional media to remain financially viable will also be key to understanding the media and advertising markets,” Mr Sims said.

“Our aim is also to understand better the digital platforms’ business models and how they operate behind the scenes, and the evolving nature of the way consumers search for and receive news in Australia. We are particularly interested in the extent to which digital platforms curate news and journalistic content.”

The ACCC is seeking submissions in response to its issues paper by 3 April 2018 and will issue a preliminary report into its findings in December 2018.

Consumers may alternatively provide feedback to the inquiry more informally via the ACCC consultation hub.

As part of this inquiry, the ACCC will use its compulsory information gathering powers to obtain information from digital platforms and media organisations that is not publicly available.

Background

In December 2017 the Australian Government directed the ACCC to undertake a public inquiry into the impact of digital platforms on competition in media and advertising services markets, in particular in relation to the supply of news and journalistic content.

The ACCC must provide a preliminary report to the Treasurer by 3 December 2018 and a final report by 3 June 2019.

ACCC focusses on energy, broadband, net economy and financial services in 2018

Chairman Rod Sims has today announced the ACCC’s compliance and enforcement priorities for 2018 at a CEDA event in Sydney.

He signalled that the ACCC will shortly release its interim report into residential mortgage pricing and a key focus will be on transparency, particularly how the major banks balance the interests of consumers and shareholders in making their interest rate decisions.

This year, the regulator will focus on consumer issues in broadband services and energy, competition in the financial services and commercial construction sectors, systemic consumer guarantee issues, and conduct that may contravene the new misuse of market power and concerted practices provisions.

“As I have repeatedly said, Australia faces an energy affordability crisis. This has upended one of Australia’s core sources of competitive advantages, and caused significant consumer harm. The ACCC’s retail electricity pricing inquiry report and the ACCC’s wholesale gas inquiry have given us, and the wider community, a far stronger understanding of the issues and pressures around rising energy prices,” said Mr Sims.

“Armed with the clear findings on the causes of the problem, the ACCC will now focus on making recommendations that will improve electricity affordability across the National Electricity Market and provide recommendations for reform in our final report at the end of June 2018.”

“Consumer issues in the provision of broadband services, including addressing misleading speed claims and statements made during the transition to the NBN, have become one of the ACCC’s most prominent issues in the past two years and highlights the importance of both our consumer and competition focus.”

“The first report of the ACCC’s Measuring Broadband Australia program will be released shortly, and our commitment to truth in advertising related to broadband speeds is making it easier for Australians to choose a service provider. You have seen a number of ACCC enforcement actions in 2017 and can expect further interventions this year.”

The ACCC is also well placed to play a role in consumer and competition issues relating to access to data, as recognised by the government.

“This is a hugely important pro-competition and pro-consumer innovation. At the heart of the proposals is giving consumers access to data that is held about them by business, including the ability to direct that such data be copied and provided to a third party.”

The ACCC’s Financial Services Unit is now well established and will, post 1 July, proactively identify and investigate competition issues in the sector.

“Importantly, the ACCC is due to release its interim report into residential mortgage pricing shortly. As directed by the Treasurer, a key focus will be on transparency, particularly how the major banks balance the interests of consumers and shareholders in making their interest rate decisions.”

Mr Sims highlighted 2018 as the first full year the ACCC will have powers covering misuse of market power and concerted practices.

“In response to the Harper Reform legislation, the ACCC has established the Substantial Lessening of Competition (SLC) Unit to focus on investigations that could give rise to cases under the new laws. The SLC Unit also has a broader mandate to enhance our investigation of competition cases and look afresh at the way we handle such investigations. The ACCC fought hard for these provisions and we will be using them,” Mr Sims said.

Mr Sims also stressed the importance of higher penalties under both consumer and competition law. In relation to the Australian Consumer Law (ACL), legislation was introduced last week to raise penalties from $1.1 million for companies to the greater of $10 million, three times the value of the benefit received, or where the benefit cannot be calculated, 10 per cent of annual turnover in the preceding 12 months.

“Currently, the maximum penalties for breaches of the ACL are, for corporations, approximately one-tenth of the lowest maximum penalty for breaches of the Competition Law. There is no good reason for this difference as we have seen cases where consumer law breaches have led to very substantial harm to many consumers.”

In relation to competition penalties, the ACCC is also anticipating the launch of an OECD report at the end of March will shine a light on Australia’s approach to antitrust sanctions in comparison with other developed competition law jurisdictions.

“Put simply, we believe large businesses should bear penalties which are commensurate to their size, in order to achieve specific and general deterrence. Making this happen is a huge priority and challenge for the ACCC in 2018.”

Most keenly anticipated, perhaps, is the ACCC’s inquiry into digital platforms.

“Concerns about the influence of digital platforms have become prominent in recent years, on many fronts, and this inquiry will be the first of its kind to explore broadly the competition and consumer implications,” Mr Sims said.

“A key question will be how much consumers know about the amount and use of the data about them that is collected and sold by the digital platforms in the form of advertising.”

ACCC Report into Mortgage Pricing Includes ‘Some Surprises’

From The Adviser.

The chairman of the Australian Competition and Consumer Commission has revealed that there will be some “surprises” in the upcoming draft report into how the banks price residential mortgage products.

The inquiry into how the major banks price their mortgage is the first undertaking of the ACCC’s new Financial Sector Competition Unit, which is tasked with undertaking regular inquiries into specific competition issues across the financial sector.

Starting with the $1.2 million inquiry into residential mortgage product pricing, the ACCC is aiming to understand how the banks affected by the major bank levy explain any changes or proposed changes to fees, charges or interest rates in relation to residential mortgage products.

The inquiry relates to prices charged until 30 June 2018.

Speaking to The Adviser in May 2017, ACCC chairman Rod Sims said: “The purpose of this inquiry is to provide customers with greater understanding on how the major banks price their mortgage products and increase transparency around any changes or proposed changes to fees, charges or interest rates in relation to these products.”

In comments made to The Australian Financial Review and confirmed by the ACCC, Mr Sims noted that the commission’s draft report into mortgage pricing will be released in February or March and will contain “some surprises”.

Mr Sims said: “We were asked by the Treasurer to do an inquiry much like we are doing with gas and electricity… to get prices down and the market working as it should,” Mr Sims said.

“We will be bringing out a draft report in February or March which will provide more transparency on how the banks make their interest rate decisions and how the market structure and the level of competition in the banking sector impacts those decisions… that will be quite an important report… there are some surprises.”

While details of these surprises have not been revealed, there have been some suggestions that the banks could be passing on the cost of the government’s new major bank levy and macro-prudential measures to customers. AFG CEO David Bailey last year warned that “history suggests the big banks will undoubtedly pass this new cost on”.

Mr Bailey said: “The extent to which they are able to pass this levy on will depend on how strong our regulators are with the new supervisory powers also announced on budget night.”

The corporate watchdog has also previously warned that the big banks could be in breach of the ASIC Act over the reasons given for hiking interest rates.

However, some major bank heads, such as NAB chief executive Andrew Thorburn, have said that the major bank tax will “impact millions of everyday Australians” as any tax ”cannot be absorbed”. Likewise, Westpac CEO Brian Hartzer said that “the cost of any new tax is ultimately borne by shareholders, borrowers, depositors and employees.”

Third Report On Banks Recommends Focus on IO Loan Pricing

Last Thursday, the House of Representatives Standing Committee on Economics released their third report on their Review of the Four Major Banks.  They highlight issues relating to IO Mortgage Pricing, Tap and Go Debt Payments, Comprehensive Credit and AUSTRAC Thresholds.

Looking back at the issues The Committee raised since inception in 2016, they have had a significant impact on the banks and again shows how the landscape is changing, outside of a Banking Royal Commission.  It also suggests The Commission will not necessarily deflect scrutiny!

Here are the key points from their report:

Since the House of Representatives Standing Committee on Economics commenced its inquiry into Australia’s four major banks in October 2016, the Government has announced significant reforms to the banking and financial sector to implement the committee’s recommendations.

The Treasurer requested that the House of Representatives Standing Committee on Economics undertake – as a permanent part of the
committee’s business – an inquiry into:

  • the performance and strength of Australia’s banking and financial system;
  • how broader economic, financial, and regulatory developments are affecting that system; and
  • how the major banks balance the needs of borrowers, savers, shareholders, and the wider community.

In November 2016, the committee published its first report, which followed the first round of hearings a year ago in October 2016. The report contained 10 recommendations to reform the banking sector, including calling for new legislation and other regulatory changes to improve the operation of the banking sector for Australian consumers. In a second report in April 2017, following hearings in March, the committee reaffirmed the 10 recommendations of its first report and made an additional recommendation in relation to non-monetary default clauses.

In the 2017 Budget, the Treasurer announced the Government would be broadly adopting nine of the committee’s 10 recommendations for banking sector reform. These recommendations include putting in place a one-stop shop for consumer complaints, the Australian Financial Complaints Authority (AFCA); a regulated Banking Executive Accountability Regime (BEAR); and, new powers and resources for the Australian Competition and Consumer Commission (ACCC) to investigate competition issues in the setting of interest rates. The government also adopted the committee’s recommendations in relation to establishing an open data regime and changing the regulatory requirement for bank start-ups in order to
encourage more competition in the sector.

The Committee’s Third Report makes the following recommendations to Government:

  • The committee is concerned by the increase in transaction costs merchants
    now face as a result of the shift to tap-and-go payments. These costs are
    ultimately borne by customers. If the banks do not act by 1 April 2018, regulatory action should be taken to ensure that merchants have the choice of how to process “tap and go” payments on dual network cards. At present merchants are forced to process these transactions through schemes such as Visa and MasterCard rather than eftpos. It is estimated that this forced processing costs merchants hundreds of millions of dollars in additional annual fees at present;
  • The Australian Competition and Consumer Commission, as a part of its inquiry into residential mortgage products, should assess the repricing of interest‐only mortgages that occurred in June 2017;
  • Despite many commitments by banks in the past to implement CCR, little
    progress has been made. The Government should introduce legislation to mandate the banks’ participation in Comprehensive Credit Reporting as soon as possible; and
  • The Attorney‐General should review the major banks’ threshold transaction reporting obligations in light of the issues identified in the Australian Transaction Reports and Analysis Centre’s (AUSTRAC) case against the Commonwealth Bank of Australia.

Interest Only Mortgage Loans

Specifically on the IO loan situation, while the banks’ media releases at the time indicated that the rate increases were primarily, or exclusively, due to APRA’s regulatory requirements, the banks stated under scrutiny that other factors contributed to the decision. In particular,banks acknowledged that the increased interest rates would improve their profitability. A key reason for such an improvement is that the major banks increased rates on both new and existing interest-only loans in June 2017. This is despite APRA’s interest-only measure only targeting new lending. As of 6 October 2017, analysts at CLSA estimated that the banks’ net interest margins increased by up to 12 bps following the rate increases announced in June and March.

The improvement in net interest margins is forecast to be so beneficial for Westpac that several analysts upgraded their outlook following the price announcements in June 2017.

The ACCC is currently conducting an inquiry into residential mortgage products. This inquiry was established to monitor price decisions following the introduction of the Major Bank Levy. As a part of this inquiry, the ACCC can compel the banks affected by the Major Bank Levy to explain any changes to interest rates in relation to residential mortgage products. The inquiry relates to prices charged until 30 June 2018.

The committee recommends that the ACCC analyse the banks’ internal documents to assess whether or not they are consistent with their statements in their June 2017 media releases and subsequent public commentary. In particular, the ACCC should analyse the banks’ decisions to increase interest rates on existing borrowers despite APRA’s measure only targeting new borrowers. Further, the ACCC should consider whether the banks’ public statements adequately distinguish between new and existing borrowers. The ACCC should consider whether the media statements suggest rates on existing interest-only mortgages rose as a direct consequence of APRA’s regulatory requirement. It will be important that the ACCC conducts granular analysis of the financial modelling of the banks. The ACCC will need to understand the true financial impact on the banks of APRA’s regulatory changes, and assess that impact against the public statements of the banks.

ACCC commences inquiry into digital platforms

The Federal Government has today formally directed the ACCC to commence an inquiry into digital platform providers such as Facebook and Google.

The ACCC’s inquiry will look at the effect that digital search engines, social media platforms and other digital content aggregation platforms are having on competition in media and advertising services markets.

“The ACCC goes into this inquiry with an open mind to and will study how digital platforms such as Facebook and Google operate to fully understand their influence in Australia,” ACCC Chairman Rod Sims said.

“We will examine whether platforms are exercising market power in commercial dealings to the detriment of consumers, media content creators and advertisers.”

“The ACCC will look closely at longer-term trends and the effect of technological change on competition in media and advertising,” Mr Sims said.

“We will also consider the impact of information asymmetry between digital platform providers and advertisers and consumers.”

Advertising expenditure in print newspapers has been in decline for a number of years. Recent ACCC merger reviews have shown that most advertisers are spending less on print newspapers and finding alternative ways of reaching target audiences, including through digital media.

“As the media sector evolves, there are growing concerns that digital platforms are affecting traditional media’s ability to fund the development of content,” Mr Sims said.

“Through our inquiry, the ACCC will look closely at the impact of digital platforms on the level of choice and quality of news and content being produced by Australian journalists.”

By holding an inquiry under Part VIIA of the Competition and Consumer Act (2010), the ACCC can use compulsory information gathering powers and hold hearings to assess the level of competition in a market.

“We are keen to hear the views of content creators, mainstream media outlets and smaller media operators, platform providers, advertisers, journalists, consumers and small business interest groups,” Mr Sims said.

The ACCC is expected to produce a preliminary report early December 2018, with a final report due early June 2019. Further information, including the terms of reference, is at www.accc.gov.au/digital-inquiry

Background

The ACCC will soon distribute an issues paper outlining matters relevant to the inquiry, and will be calling for public submissions. The ACCC will conduct public and private hearings next year and details will be released in due course.

ACCC and Fee Free ATM Services in Very Remote Areas

The ACCC has issued a draft determination proposing to grant re-authorisation to parties to provide fee free ATM services in very remote Indigenous communities for 10 years.

Under the arrangement, participating banks and ATM deployers provide fee-free ATM withdrawals and balance enquiries at up to 85 selected ATMs for customers of those banks. The ACCC previously authorised the arrangement in 2012 for five years, which expires in December.

“The arrangement co-ordinated by the Australian Bankers’ Association has resulted in significant public benefits over the past five years, which are likely to continue for the next ten years,” ACCC Commissioner Roger Featherston said.

People living in very remote Indigenous communities can often pay high levels of total ATM fees, due to frequent ATM usage and a lack of access to alternatives.

“High ATM usage and fees intensifies the financial and social disadvantage found in very remote communities. Enabling Indigenous people in these communities to have the same access to fee-free ATMs that other Australians enjoy in less remote parts of the country lessens this disadvantage,” Mr Featherston said.

The proposed conduct allows for additional banks and ATM deployers to be added to the arrangement.

The communities to benefit from this project are located across the Northern Territory, Queensland, South Australia and Western Australia. The full lists of ATM locations and participating banks are attached to the draft determination, available on the public register.

The ACCC is now seeking submissions on the draft determination by 16 November 2017 and expects to release its final determination in December 2017.

ACCC Electricity report details affordability, competition issues

We know from our surveys that many households are under intense pressure thanks to rising costings of living and flat wages. Higher electricity prices are one of the main causes.

Now the ACCC has published a preliminary report into the electricity market highlighting significant concerns about the operation of the National Electricity Market, which is leading to serious problems with affordability for consumers and businesses. They say residential prices have increased by 63 per cent on top of inflation since 2007-08. The main reason customers’ electricity bills have gone up is due to higher network costs. Higher wholesale costs during 2016-17 contributed to a smaller $167 increase in bills.

Consumers and businesses are faced with a multitude of complex offers that cannot be compared easily. Many of these issues arise from unnecessarily complex and confusing behaviour by electricity retailers.

This suggests the current Government focus on supply related issues is myopic, and this alone cannot solve the issues in the system, many of which are simply stemming from poor company behaviour.  And, by the way, this mirrors the issues in the UK, where similar behaviour also exists!

The Retail Electricity Pricing Inquiry preliminary report details the ACCC’s initial assessment of information it has gathered including documents and data from industry, consumers, businesses, representative groups and other government and non-government organisations.

The inquiry received over 150 submissions since it began in April. The ACCC heard directly from consumers, businesses and other stakeholders at public forums in Adelaide, Brisbane, Melbourne, Sydney, and Townsville.

“It’s no great secret that Australia has an electricity affordability problem. What’s clear from our report is that price increases over the past ten years are putting Australian businesses and consumers under unacceptable pressure,” ACCC Chairman Rod Sims said.

“Consumers have been faced with increasing pressures to their household budgets as electricity prices have skyrocketed in recent years. Residential prices have increased by 63 per cent on top of inflation since 2007-08.”

The main cause of higher customer bills was the significant increase in network costs for all states other than South Australia. In South Australia, generation costs represented the highest increase. There was a much larger increase in the effect of retail costs in Victoria than in other states. Retail margins increased significantly in NSW, but decreased in others.

“The main reason customers’ electricity bills have gone up is due to higher network costs, a fact which is not widely recognised. To a lesser extent, increasing green costs and retailer costs also contributed,” Mr Sims said.

“We estimate that higher wholesale costs during 2016-17 contributed to a $167 increase in bills. The wholesale (generation) market is highly concentrated and this is likely to be contributing to higher wholesale electricity prices,” Mr Sims said.

The ACCC estimates that in 2016-17, Queenslanders will be paying the most for their electricity, followed by South Australians and people living in NSW. Victorians will have the lowest electricity bills. This is due to a range of factors including usage patterns in various states, including the prevalence of gas usage in Victoria in particular.

The closure of large baseload coal generation plants has seen gas-powered generation becoming the marginal source of generation more frequently, particularly in South Australia. Higher gas prices have contributed to increasing electricity prices.

The ‘big three’ vertically integrated gentailers, AGL, Origin, and EnergyAustralia, continue to hold large retail market shares in most regions, and control in excess of 60 per cent of generation capacity in NSW, South Australia, and Victoria making it difficult for smaller retailers to compete.

The ACCC has heard many examples of the difficulties that consumers and small businesses face in engaging with the retail electricity market and the particular difficulties faced by vulnerable consumers.

“Consumers and businesses are faced with a multitude of complex offers that cannot be compared easily. There is little awareness of the tools available to help consumers make informed choices or seek assistance if they are struggling to pay their electricity bills,” Mr Sims said.

“Many of these issues arise from unnecessarily complex and confusing behaviour by electricity retailers, and in some cases this appears to be designed to circumvent existing regulation.”

“There is much ill-informed commentary about the drivers of Australia’s electricity affordability problem. The ACCC believes you cannot address the problem unless you have a clear idea about what caused it.”

“Armed with the clear findings on the causes of the problem, the ACCC will now focus on making recommendations that will improve electricity affordability across the National Electricity Market,” Mr Sims said.

Increased generation capacity (particularly from non-vertically integrated generators), preventing further consolidation of existing generation assets, and improving the availability and affordability of gas for gas fired generation, could all help to take the pressure off retail electricity bills.

The ACCC will also seek to identify ways to mitigate the effect of past decisions around network investments on retail electricity prices, noting that many past decisions  are ‘locked-in’ and will burden electricity users for many years to come.

The ACCC will consider steps that can be taken to reduce complexity and improve consumers’ ability to engage with the retail electricity market and switch suppliers.

“We will provide recommendations for reform in our final report, which will be provided to the Treasurer in June 2018,” Mr Sims said.

In part based on our findings, the Federal Government has already taken some steps towards improving electricity affordability, including obtaining commitments from some retailers to move consumers off high standing offers or expired benefit offers, and the proposed removal of limited merits review of AER decisions.

In addition, the ACCC’s preliminary report contains some recommendations that could be immediately implemented by governments:

  • Provide additional resourcing to the AER’s Energy Made Easy price comparison website as a tool to assist consumers in comparing energy offers
  • State and territory governments should review concessions policy to ensure that consumers are aware of their entitlements and that concessions are well targeted and structured to benefit those most in need.
  • Improvements to the AER’s ability to effectively investigate possible breaches of existing regulation, for example the power to require individuals to appear before it and give evidence. Consideration should also be given to the adequacy of existing infringement notices and civil pecuniary penalties to deter market participants from breaching existing regulations.

 

Background

The ACCC’s preliminary findings are that, on average across the NEM, a 2015-16 residential bill was $1,524 (excluding GST). This average residential bill was made up of:

  • network costs (48 per cent)
  • wholesale costs (22 per cent)
  • environmental costs (7 per cent)
  • retail and other costs (16 per cent)
  • retail margins (8 per cent).

In real terms, average residential bills increased by around 30 per cent (on a dollars per customer basis) between 2007-08 and 2015-16. Average residential prices (as measured by cents per kWh measure) have increased by 47 per cent in real terms during the same period.

After considering wholesale price increases in 2016-17, the ACCC estimates that average bills in dollars per customer increased in real terms by 44 per cent since 2007-08, while prices in cents per kWh have increased in real terms by 63 per cent.

See report: Retail Electricity Pricing Inquiry preliminary report

For more information: Electricity supply prices inquiry