Increased data sharing within financial services could expose clients to “predatory practices” and “conflicted advice” from new, third-party service providers, the Consumer Action Law Centre has warned.
In a submission to Treasury’s review of open banking in Australia, the Consumer Action Law Centre said that while it encouraged innovative business models, appropriate protections are needed to ensure that clients are not taken advantage of.
“While we are supportive of innovation and competition in the financial system, we have seen ‘innovation’ used as a guise in the past to justify predatory practices that have led to significant consumer harm,” the submission said.
“Open banking will ultimately see third parties with increased access to consumer data. We are concerned [about] access to banking data by predatory businesses.”
The group said that increased consumer choice did not always equate to better outcomes for clients, and too much information often leads to clients’ decision making worsening.
“A market with a large number of choices can therefore be just as inefficient as a market with few choices if consumers do not understand what is on offer; cannot easily compare different offers; or are not rewarded for making the effort to search, compare and switch,” the submission said.
“We urge the review to consider whether increased choice from open banking will result in improved consumer outcomes, particularly for vulnerable and disadvantaged consumers.”
The Consumer Action Law Centre said that many unregulated financial services companies were already benefitting from the “high financial stress” of Australian consumers, and that allowing more entrants into the industry increased the risk of clients making poor financial decisions and suffering significant financial harm.
“While these companies may claim to be able to ‘help’ people manage their money by accessing their data,” the submission said, "in reality they charge significant fees for often very poor-quality and conflicted advice."
[Related: It's time for innovation in mortgages]