SYDNEY (Reuters) - Australia’s corporate watchdog called for a ban on debit card overdraft services for low-income indigenous customers, saying their poor understanding of fees left them paying unreasonably high amounts for basic banking services.
Banks should provide “fee-free accounts” to such clients and increase efforts to manage cultural challenges, the Australian Securities and Investments Commission (ASIC) said at an ongoing misconduct inquiry into the financial services sector - the largest contributor to the country’s GDP.
Halfway through a year of scheduled hearings, the inquiry has already led to damaging revelations of careless and at times fraudulent lending practices, wiping out tens of billions of dollars from Australian bank valuations, spurring major asset sales and leading to executive departures.
The inquiry is now turning its focus to the financial exclusion of indigenous customers who are ending up with unsuitable products amid predatory sales practices.
Low financial literacy is among the major challenges faced by financial institutions when servicing these communities, said Nathan Boyle, who investigates indigenous issues for ASIC.
“People tend not to understand ... what an informal overdraft is. If they use the ATM card to withdraw money and the money comes out, then people tend to think that they did have money in their account which is where people are getting caught out,” Boyle told the inquiry on Tuesday.
Sometimes a A$20 ($14.67) fee is 10 percent of the person’s fortnightly income, Boyle said, adding that free accounts would give people access to only the funds they have in their bank, helping them avoid expensive overdraft fees.
Boyle also pointed out that some financial companies were taking advantage of cultural differences, such as the importance of funeral services in Aboriginal culture, to sell funeral and life insurance plans.
About half of funeral insurance policies in remote indigenous communities have been sold to people 20 years old or younger, lawyers assisting the inquiry said, citing ASIC data.
Boyle said an ASIC review found a unit of Clearview Wealth (CVW.AX) had used the tendency of indigenous people to express agreement to questions they did not understand to sell insurances.
For instance, when a telephone representative asked for bank details, the indigenous client obliged and ended up paying for funeral and insurance policies they never wanted, Boyle added.
“People will provide details that they’re asked for by someone they see in a position of authority ... to the point they’ve provided enough information to have entered into a contract even though they never intended to,” he said.
A Clearview Wealth spokeswoman said the company had unreservedly apologized to any customers affected, noting the unit had been closed in 2017.
Clearview Wealth is working with ASIC to remediate any customers who were adversely affected, she added.
Reporting by Paulina Duran; Editing by Himani Sarkar