Birth, marriage and debt: Bankrupcty in Australia

If you are a man, in your early forties and single, then  chances are you are more likely to be bankrupt. That’s the finding of the Profile of Debtors 2011 a new report released by Insolvency and Trustee Service Australia.  This Government agency would know as anyone who becomes bankrupt must lodge a statement of affairs with ITSA. 

The law covers this off under the Bankruptcy Act 1966 which allows for trustees to distribute property fairly among creditors and prosecute dishonest debtors.  Bankruptcy lasts three years but can be extended. Since 2003 several patterns among bankrupts have been noticeable: they are mostly male (55:45), they are getting older, and they have less children than before. The primary causes are unemployment and economic conditions affecting their industry (particularly since 2009). The majority of bankrupts earn $30,000 or less and the size of their unsecured debt is increasing.
Despite their low incomes, almost half of them have unsecured debt of more than $50,000 and over a quarter per cent have unsecured debt of more than $100,000.

Over 23,000 Australians went bankrupt in 2011 and ISA constructed a profile of the average bankrupt last year. He was male aged between 35 and 54 years and single without dependants. It was his first time bankrupt. He earned less than $30,000 in the 12 months prior to bankruptcy (well below the $48,000 national average) and owed more than $20,000 mostly to the banks. He had no assets like property that could be used to repay creditors.  Tasmania and Queensland had the highest percentage of bankrupts and NT had the lowest. Three percent of bankrupts identified as Indigenous (who comprised  2.5% of the population). 

Nearly half of the liabilities is unidentified by the research with the “other” category responsible for 47% of all debt. Of the identified debt, credit cards were highest, responsible for 21 percent of unsecured debt followed by personal loans and house mortgage both on 12 percent. Credit cards also accounted for 18% of personal insolvency agreement debtors’ debt and a record 58% of debt agreement debtors’ unsecured debt.

 

According to ASIC, Australians have over $36 billion owing on credit cards, an average of $4,700 per card holder. MoneySmart’s Delia Rickard said paying off their credit card debt should be a top priority for millions of Australians.  ‘If you have $4,700 credit card debt (the national average) and only make the minimum repayments, it will take 49 years to pay it off and cost you around $14,600 in interest,” Rickard said. “But if you are able to pay off $250 each month, you’d pay off your debt in two years and save $13,700 in interest.”

Despite the RBA keeping interest rates at historical lows, banks still charge astronomical rates for their credit cards. Paul Clitheroe said the average card rate is around 17 per cent but many charge 20 per cent or more. “Monthly interest charges continue to eat away at household budgets making it hard to get ahead with card debt,” he said. “If you're serious about clearing card debt, one solution is to use a personal loan to pay off the balance.” Clitheroe said this would increase monthly repayments but the debt would  be paid off in three to five years depending on the loan term.

There are new rules in place since July 1 which will allow people be better informed against the scams the credit card companies use to fleece their customers. The company must now refrain from offering limit increases on cards, unless agreed, provide monthly statements that show how long it will take to repay the entire balance if you only make minimum repayments and provide clearer details on interest-free periods. All new credit cards must include: facts sheets to make it easier to compare offers, the capacity for consumers to nominate the credit limit, a ban on over-limit fees, notifications if you exceed your credit limit and repayments to the most costly aspect of your credit card debt first (such as cash advances) to reduce debt faster.

Of country journalism and amoral insurers

(photo credit: Maranoa Regional Council)

I have a story in tomorrow’s paper that made me angry, angry that is, I had to write it at all.

This time last year, Roma and western Queensland had a major flood. There was substantial damage to homes and livelihoods, though fortunately no died as a direct result. Nevertheless in many ways the floods wreaked havoc in the same way as they would later do in Eastern Queensland in Dec 2010 and Jan 2011. There was the initial heartbreak of waters getting into houses and destroying prize possessions and priceless memories. Then later, many residents found they had been dealt a double blow.

Insurance companies sent out pennypinching assessors with unwritten orders not to pay out and found every last measly trick in the book to deny insurance claims. In South West Queensland hundreds of residents had their claims refused after the March 2010 event; in South East Queensland at the turn of the year, thousands were forced into the same leaky boat. Rapacious insurers such as NRMA, NAB (and underwriters Allianz) and ANZ (underwritten by QBE) paid hydrologists to make findings that suited the companies. “Sunny Day Flooding” they called it, which wasn’t covered according to the small print, and not stormwater damage which was. This was despite independent hydrology reports saying exactly the opposite.

When Roma, St George and Bollon residents found out their insurers had abandoned them to their fate, they were left with two choices: involve the Financial Ombudsman Service or join a class action to fight the companies. There were a few small and remote voices (the Western Star was one) who complained long and bitterly about the cynical customer management of the insurers but they were of no concern to multi-national companies with shareholders to look after.

The east Queensland flood event was a quantum degree higher in intensity and effect. When the companies began to refuse claimants, national media took notice as did the PR departments of the major companies. One of the biggest is the National Australia Bank. They (and Allianz) refused to pay out based on their WorleyParsons hydrologist's report. It was Roma all over again with one crucial difference. Uncomfortable national media headlines in a national emergency was not a good look, so NAB pledged $4 billion in lending support and a $15m assistance fund for underinsured clients “to provide ex-gratia payments to assist NAB Home Insurance customers who are not covered for the losses they have suffered in the recent floods.”

When customers who suffered in the 2010 Roma flood heard about this fund, they reasonably rang the number provided. They were told the fund was not for them. “Your event happened too long ago”, they were told bluntly and refused help. The event happened on 2 March 2010, slightly over a year ago, but as one victim who lost all their furniture to the floods told me poignantly, “we remember every detail like it happened yesterday.”

I contacted the National Bank’s media people and lobbed three questions at them:
1) Is the Courier-Mail “Sunny Day Flooding” report accurate and has the NAB put aside a large amount of money to cover Brisbane and Toowoomba flood victims who may be under insured?
2) If so, are there any plans to extend these payments to flood victims of the Western Qld floods of March 2010?
3) If there are no such plans, how does the bank justify helping out those in urban areas while not extending the same courtesy to its rural customers who suffered just as much in a similar fashion, but at a different time and with less national media exposure?

The response I got on Monday was a masterpiece of PR puffery that told me nothing but took its time about getting there.
“NAB can confirm, that NAB branded insurance does not provide cover for floods. However, earlier this year, due to the size and impact of the floods which affected East Australia, NAB, like many other Australian businesses and individuals, provided additional support measures to assist impacted customers. NAB always provides a range of hardship and other support measures to customers who are impacted by natural disasters.”

The response made no attempt to answer my questions directly but more or less confirmed question 1 was true. Questions 2 and 3 weren't addressed. Instead I got managerial language and a brush off.

Undeterred, I responded again on Tuesday: "You didn’t address my questions 2 and 3 so I will take this to mean that NAB has no intention of helping out its rural customers who pay just as much insurance as their city counterparts. I will also take it to mean NAB is unable to justify why they won’t help out Roma customers other than the fact that they were unlucky enough to be impacted by floods which did not have as much 'size and impact' as the East Australia flood".

This time I got no response. So I let them have it with both barrels in a story I wrote for tomorrow’s front page. The first sentence read “National Australia Bank’s motto is 'more give and take less' but try telling that to fuming Roma customers who the bank has abandoned a second time in 12 months.” You’ll have to buy the paper to read the rest of the story. However, wanting to give NAB a chance to respond, I sent them a full copy of the article several hours before my deadline and told them to pass it on to their management. I don’t know if they did or did not but they never responded to me.

After all, why should they? This is a company that made cash profits of $4.58 billion last year. What was I but the representative of some two-bit hick media outfit out in Woop Woop. There was no need to set up a fund for ex-gratia payments for the people I represent.

But regional newspapers play a vital role in small towns. As Rod Kirkpatrick points out, since the 19th century a district was lacking an essential weapon in its armoury if it wasn't represented by a journal of its own. They became advocates and agitators for regional rights and vehicles for political causes. They achieved cohesion and “countrymindedness” for their constituents.

Today, many rural papers have been run down by the pressures of running a newsprint business. But the need for cohesion and countrymindedness (if not bloodymindedness) is still as strong as ever. If I as a country journalist, don’t get mad when local citizens are duped by sanctimonious commercial enterprises that are supposed to serve them but instead act like moral pygmies, then who will?

Squirming all the way to the bank

The last two of the major four Australian banks to act on the Reserve Bank rate rise have passed on substantial rises to their beleaguered customers. While the RBA announced a quarter of a percent interest rate rise on Melbourne Cup Day last week, today the National Australia Bank lifted its standard variable rate 43 points to 7.67 percent while Westpac added 35 points taking their standard variable loan to 7.86 percent. ANZ announced a similar hike yesterday.

All three were slow to act after Commonwealth’s early response of 20 points above the RBA addition unleased a week and a half of frenzied attacks against the banks. Both media and politicians had their reasons for lashing the banks and with the CBA and its CEO Ralph Norris taking most of the heat Westpac, ANZ and NAB scurried off to the bunkers to contemplate how to sell their response.

It was never in much doubt they too would pass on inflated rises. Like the Commonwealth, all three acted in the best interests of their board not their customers. While all four expected some adverse consumer reaction, the four majors could rely on the vast majority of their customers to grudgingly accept the rises rather than go through the hassle of changing over to cheaper options provided by loan operators, credit unions and building societies. Between them the Big Four control over 86 per cent of the Australian mortgage lending market.

The media release NAB sent out today to announce the rise is a masterpiece in sleight of hand. In the same first breath as it announced the size of the raise, it maintained it was still “highly competitive” against the other banks. It is true they remain the cheapest of the big four by 13 points. But they are not highly competitive when measured against Wizard/Aussie or RAMS. Building societies such as ABS and Heritage are also between 10 and 20 basis points cheaper than NAB. Credit unions have cheaper loans still with Credit Union Australia offer a (pre rate rise) standard variable of 6.87 percent, almost a full 100 points cheaper than Westpac.

The trigger for the bank’s money grab was the initial decision by the RBA as everyone in Australia was tucking into chicken and champagne ahead of the Melbourne Cup. RBA Governor Glenn Stevens began with apparent good news. The economy was purring along in good shape. Confidence is returning, he said, employment is firming and business is being stimulated by global growth and high commodity prices. Trouble was these conditions generally brought increased inflation with them. “Inflation is likely to rise over the next few years,” said Stevens. “This outlook, which is largely unchanged from the Bank's earlier forecasts, assumes some tightening in monetary policy.”

The RBA "tightened" monetary policy by 0.25 percent. While Melbourne Cup was ending, the Commonwealth was first out of the blocks. The additional 25 points was not tight enough for them. The Commonwealth raised their home loan variable interest rate from 7.36 per cent to 7.81 per cent a year, a jump of 45 points. Group Executive, Retail Banking Services Ross McEwan blamed the additional 20 point rise on the “sustained increase in the Retail Bank’s wholesale funding and retail deposit costs”. McEwan said money was more expensive since the GFC and as older and cheaper funding arrangements expire they had to be replaced with more expensive funding. Commonwealth said consumer deposits which formed 60 percent of their home loan funding were now more expensive because of “increased competition".

After nine days of silence from the other majors, ANZ came out with their plan yesterday. They bumped their rates up 39 points to 7.80 percent and blamed “the sustained rise in the cost of funds in recent months”. ANZ CEO Australia Philip Chronican dressed the decision up as taking “the lead in doing more to give customers’ choice and to help them manage their finances in this uncertain interest rate environment.”

Like the NAB, Westpac waited until today to tell us their news. They added 35 points taking their standard variable loan to 7.86 percent, the highest of the four majors. Group Executive, Westpac Retail & Business Banking Rob Coombe was wheeled out to deliver the bad news. “This was a very difficult decision brought upon us by average funding costs that continue to rise, and was only made after the most careful consideration.”

NAB didn’t bother disguising their news as “careful consideration”. Instead they asked consumers to look at positives. As well as their fabled competitiveness, they were reducing their greenhouse gas emissions (no doubt causing jubilation among green mortgage holders) while asking for sympathy while they continue to absorb "a significant portion" of its increased average funding costs. The problem with these arguments are the banks recent profit statements. In 2010 NAB cash earnings increased almost a fifth to $4.6 billion. Commonwealth did better still with a similar percentage increase to $5.7 billion. Westpac were on the same path with cash earnings of $3 billion for the first half of the year, as were ANZ with $2.3 billion.

Part of the reason for these high profits are Australia’s high interest rates compared to most other developed other countries. The US, Canada, UK, Japan, the Euro Zone and Switzerland all have official rates of 1 percent or under. Only the steamrolling economies of China, India and Brazil have higher rates than Australia. But there is a second reason that enables bank customers as taxpayers to feel angry. The huge profits are a reflection of the privileged position enjoyed by the banks resulting from the Australian Government’s bank deposit guarantee.

The guarantee was withdrawn at the end of March but kept Australia stable in the post Lehman Bros collapse era. The State acted as guarantor to $32 billion worth of bank borrowing from international credit markets. On behalf of those unhappy taxpayers (and with his own job on the line) Treasurer Wayne Swan led the charge against the banks. “What we've seen in terms of the profitability of our banks which have been restored to pre global financial crisis levels,” he said, “means that any increase over and above the Reserve Bank increase is simply not justified.” Swan has an undoubted political agenda but the management double-speak used by the banks to justify the inflated rises would appear to bear him out.