Banks and the Covid crisis: the best and the worst

Much has been made of the Big Four banks’ response to the economic fallout of the COVID crisis,  Many commentators have suggested their reputations have been rehabilitated after a tough year of inquiries and commissions.

We’ve been assailed with advertising suggesting the banks have bent over backwards to help.  Loan holidays, business repayment leniency…gosh, what a great bunch!

Consumer advocacy group CHOICE rigorously reviewed the Big Four’s customer relief programs.  They found the reality of their support disappointing.  In some instances, actually made customers worse off.

In March, as the economic effects of COVID started to show, the banks announced that they would suspend loan, credit and mortgage payments for customers whose incomes had reduced or disappeared.

CHOICE banking experts reviewed the Big Four’s COVID assistance packages and gave each one a score based on how much assistance they actually offered clients. They then crowdfunded an ad that was published in the Australian Financial Review to release their results.

How did they work it out?

COVID-19 payment pause score

CHOICE reviewed the range of hardship policies available to each bank’s customers, particularly the option for payment pauses on credit (mortgages, credit cards and loans) that did not capitalise interest.

Fair credit card score

CHOICE considered each bank’s credit card offerings – the range of cards available, the interest rates on each card, and key features of each card. They also took into consideration whether interest or any other features had been adjusted in response to COVID.

Proactive hardship assistance score

CHOICE scored each bank’s proactive efforts to identify and offer assistance to consumers with long-term or unmanageable debt, including offers to waive debt for those in hardship.

Royal commission score

CHOICE looked at each bank’s reforms in response to the banking royal commission.

The results were, in a word, underwhelming. Westpac and NAB passed, barely, with 59% and 53% respectively and Commonwealth Bank and ANZ failed, with 47% and 46%.

The biggest issue with most of the banks offering pauses on loan repayments was that they didn’t pause the interest.

The result: interest continued to accrue for the duration of the payment holiday, meaning customers end up paying more for their loan in the long run.

Westpac was the only one of the Big Four not charging interest on credit cards and loans during repayment pauses – the main reason for its position in first place.

The other big issue was the continued high interest rates on credit cards, despite the RBA slashing the official interest rate to record lows.

The results

Pass

Westpac 59%

Westpac offered a three month pause on repayments and, crucially, interest accrual on credit cards and personal loans for customers experiencing hardship. It also has a program in place to assist customers with long-term credit card debt. It offers a low-rate credit card with a very reasonable 9.9% interest, but falls down with the most expensive credit card of the Big Four, at 20.49% interest.

NAB 53%

National Australia Bank gets points for its program that proactively identifies and assists people with long-term debt. It lowered the interest on their lowest rate credit card to 12.99%, but charges customers a whopping 21.74% on balance transfers after six months. Unlike Westpac, NAB did not pause interest accrual for people on repayment holidays due to financial hardship.

Fail

Commonwealth Bank 47%

CommBank offers a reasonable low-rate credit card at 9.9% interest, but their higher end cards go as high as 20.24. It also failed to pause interest accumulation for those on loan repayment holidays, but its biggest failing was in switching customers to the minimum mortgage repayments without their consent, increasing the life and total cost of their mortgage.

ANZ 46%

ANZ also offers a program to assist customers with long-term credit card debt, but they failed to pause interest accrual during loan repayment holidays. It was found to be attracting customers with 0% interest on balance transfers, which was then increased to 20.24%.

Following the very public release of these results, CHOICE called on the Big Four to make some changes to the way they help their customers. They believe the banks should:

• Refund interest accrued on deferred loans for all people in financial hardship.
• Cut high interest rates on credit cards to reflect the low cash-rate environment.
• End the sale of harmful balance-transfer credit cards.
• Waive debts for people with long-term debts.