The biggest burns so far? Selling credit insurance to people who could never collect; charging for ‘premium’ mortgage packages without delivering any of the promised discount; allowing ‘liar loans’ written by brokers and bankers, for far more than people could afford; and the list goes on. Whether maliciously or negligently, this is all misconduct. (Banks have been outed in ASIC’s commission submission for taking an average 217 days to compensate victims too.) But many standard bank procedures and pricing are now exploitative… and while the royal commission has touched on some of my ‘top’ banking traps, here it is going to fall to you to protect yourself – or, more accurately, your wealth. The webcast has become the best place to watch Senior Counsel Assisting Rowena Orr, QC, in action. Credit:Royal Commission Trap 1:

Reducing your mortgage repayments when you’ve left them high. Traditionally, lenders have only changed your repayments if interest rates went up – in other words, because your existing amount no longer covered your liability. But one-by-one, lenders are now adopting Westpac’s long-term policy of dropping repayments to the required level. This is cynical and self-serving as interest rate cuts all-of-a-sudden mean borrowers are making extra repayments at no extra cost, which saves a fortune in money and time. Indeed, the only way you should ever adjust your repayments is up. What’s worse, as CBA recently did, some lenders are even factoring into the calculation your previously stashed additional repayments, which sucks them up and puts you back at your original, full loan term. You need to actively set a higher direct debit rate to avoid a huge interest hit. Trap 2: Charging through the nose for cash. Way back on Day One of the commission, the Financial Rights Legal Centre gave evidence that credit cards are the number one product driving people to financial hardship. So we will stick there for the next three yawning traps.

I am dearly hoping you know not to withdraw cash on a credit card, and only ever pay using a card, otherwise ‘dearly’ is the operative word. Canstar’s database shows interest on cash advances can be as high as 24.5 per cent and the average is 19.5 per cent. Yet its analysis of Reserve Bank of Australia data shows Aussies still made more than 2 million cash advances, totaling $808m, in January 2018… so we collectively paid $13m in interest that month alone. The average cash advance size was $392. Don’t forget there are no interest-free days on cash from a credit card either. Without a regulatory crackdown, this will remain the worst way to use your card. Trap 3: Structuring cards so they’re a potential prison. The royal commission heard about a real-life credit card that would take the holder 138 years to pay off… I’m not going to name the issuer because most are not far off.

Credit card interest rates have remained virtually unchanged in the past six years, despite the official rate falling from 4.75 per cent to just 1.5 per cent. They remain stubbornly, opportunistically, at an average 18 per cent. But that’s only part of the problem; the rest is that issuers usually set minimum repayments at only 2 per cent of your balance or $20 (the higher of). If you fall for it and pay just that, your debt could actually go up (factoring in the annual fee). At least we now see our potential time-in-debt on the bottom of card statements. Better still, as Consumer Action Law Centre chief executive Gerard Brody has called for, would be to cap limits at an amount that could be repaid in two years, instead of the current apparent practice of targeting people who are already incurring interest, for increases. Consumer advocate Gerard Brody Credit:Dominic Lorrimer Trap 4:

Burying the nasties of balance transfers. Regular readers will know I don’t mind 0 per cent balance transfer credit cards as “get-out-of-jail-free” cards – but only if you’re disciplined. You need to avoid two fine-print pitfalls: DON’T use the card for new spending – the rates are nose-bleed with no interest-free days; and DO pay it off in the interest-free period – or you’ll roll over to, yep, a nose-bleed rate. To make these cards safer, issuers will soon be required to notify consumers when their time is about to be up. Trap 5: Setting your rate based on your risk. This is going to be the ‘brave’ new banking world... and a very-near-future concern.