ADIs improve TD disclosure
Authorised deposit-taking institutions are still using controversial dual pricing strategies to promote their term deposits, but they have improved their disclosure of interest rates, grace periods and of the inherent risks of dual pricing.This is the key finding of the Australian Securities and Investments Commission's latest review of the term deposit market.However, ASIC said there was more room for improvement in disclosure practices.In 2010, ASIC published a review of the TD market in which it reported that depositors were getting a bad deal as a result of a widespread practice of ADIs attracting customers with high rates, often marketed as "specials", and then rolling deposits over at lower rates.Because term deposits can roll over on a default (automatic) basis, ASIC's view was that this dual pricing practice appeared to create a risk that a term deposit could roll over automatically from a higher interest rate to a lower interest rate without the depositor being conscious of the change.The gap between high and low rates was as much as 42 per cent - sometimes for terms that were only a month apart.In its latest review, published yesterday, ASIC found that the proportion of default roll-overs that resulted in depositors moving from a high rate to a low rate had dropped from 47 per cent to 11 per cent.One reason for this is that ADIs are setting fewer of their available terms at lower rates.ASIC also found that more depositors were taking advantage of improved disclosure and longer grace periods to review rates and change terms when they rolled over.In its latest review, ASIC looked at eight ADIs and found that all of them had adopted ASIC's recommendations to improve disclosure. The report said: "They disclose the risk of dual pricing and the existence of grace periods. Most tell depositors the rate that will apply to their new term deposit if it rolls over."However, ASIC said it had identified some areas where its recommendations have not been implemented. "For example, most of the ADIs we reviewed still do not disclose information about the risk of dual pricing and the existence of a grace period in their post-maturity letters. Nor do they advise investors before maturity of the indicative or actual interest rate that will apply to the term deposit after roll-over.""We also identified some areas where our recommendations have been partly implemented. For example, revised disclosure by some ADIs on the risk of dual pricing and the availability of grace periods could be improved.""We consider that it is important that investors have sufficient information to make a decision about whether to change their term deposit when it rolls over, particularly about the interest rate they will receive."