This post is a slightly modified version of a comment I made on the ABC News comments section.
Our banks are businesses. They exist to create a profit for their shareholders. They were deregulated to drive competition and the federal and state governments sold the banks they owned. So we can’t really question their desire to increase profits — even if we’re horrified by how high those profits are.
[Possibly in another post I'll talk about how just four banks won't lead to competition and so allowing them to acquire smaller banks is counter-productive, but not here]
What we must question is that banks are effectively raising the price of a service after it’s been purchased. In no other industry is this legal and it must not be allowed to continue to be legal in the credit industry.
When we take our a mortgage, we understand that interest rates fluctuate. After all, even banks can’t plan for the next 30 years. The maximum fixed term is 10 years.
But the interest rate I pay should remain steady against the RBA rate for the life of the mortgage. Otherwise it’s not just profiteering, it’s a very strange arrangement whereby I’ve agreed to buy something at a given price and then I have to pay more than I agreed, just so the seller earns a higher profit. As I said earlier, in anything other than the credit industry this would be highly illegal.
Banks should be required by law to charge interest that is in line with the RBA rate on the day I sign my mortgage. If the RBA lifts by 0.25%, then mine goes up by 0.25%.
If they want a higher profit, then they increase the difference between the RBA rate and their rate for new purchasers of credit.
What do you think? Should we include credit in the laws that require a business to charge you the price they contracted to sell it for?