Regulatory capture occurs when regulatory agencies become controlled by the industries they oversee. When the industry or group influence or control the agency it’s supposed to be regulating, this impacts consumers. Often this happens when industry representatives or lobbyists are appointed to key positions within the regulatory agency. Or, in the case of AFCA, for example, the agency becomes financially dependent on the industry it regulates.

This situation may arise through close ties between industry representatives and regulatory officials. It can also happen through a revolving door of employment between the two sectors or through direct lobbying efforts.

Regulatory capture isn’t good for individual consumers. Like, for example, industries such as banking, telecommunications, and energy, that wield significant power.

Firstly, regulatory capture undermines consumer protection. When a regulatory agency prioritises industry interests over the consumers, it leads to weak enforcement. Consequently, consumers become vulnerable to unfair, deceptive, or even predatory practices.

Secondly, regulatory capture creates barriers to justice for individual consumers. When regulatory agencies don’t enforce laws due to industry influence, consumers have to take independent legal action. The banks know this is time-consuming and expensive, deterring many consumers from seeking justice.

Thirdly, when regulatory agencies are influenced by the industries they oversee, they turn a blind eye to widespread systematic problems that harm consumers. This leads to such issues persisting for extended periods, affecting a large number of consumers and potentially causing significant harm.

If they neglect act promptly, the agencies may be barred from taking action due to the doctrine of laches. This highlights the importance of prompt and proactive intervention in protecting consumer interests.

Regulatory capture erodes public trust in government institutions. Consumers perceiving regulatory bodies as prioritizing industry interests over consumer protection, lose faith in the government’s ability to serve the public interest.

Regulatory Capture Impact Consumers

When regulations favour large corporations over consumers, we see a transfer of wealth from consumers to corporations. This exacerbates economic disparities, contributing to a vicious cycle of inequality that can be difficult to break.

In essence, the regulated become the regulators, leading to decisions that favour industry interests over public welfare. Here are a few ways it can manifest:

  • Revolving Door: High-level employees of financial firms move to regulatory positions, and vice versa. This creates a conflict of interest, as these individuals may favour their former or future employers.
  • Lobbying: Financial firms may lobby for regulations favouring their interests, often at the expense of consumer protection or market stability.
  • Funding: Agencies may become dependent on fees or funding from the firms they regulate, which could lead to softer regulation.
  • Complexity: Financial regulations can be complex, making it difficult for regulators to keep up with industry developments, leading them to rely on information and expertise from industry insiders.

The end result is poorly enforced, lenient regulations. It’s no coincidence that large corporations come out on top in these situations, because:

  • Large corporations have more resources and legal power than individual consumers. This makes it difficult for consumers to pursue legal action or even have their complaints heard.
  • Individual consumers can’t identify systemic issues, especially if they’re not familiar with the laws and regulations. This makes it easier for corporations to continue practices that aren’t in consumers’ best interests.
  • Lax enforcement of laws and regulations that protect consumers, particularly when regulatory agencies are subject to regulatory capture.

Class action lawsuits can address these issues. Consumers pool their resources and present a more formidable legal challenge to corporations. However, even class actions can be difficult to organise and win, especially against large, well-funded corporations.

Challenges for individual consumers

Regulatory capture poses significant challenges for individual consumers. The captured regulatory agencies may turn a blind eye to systemic issues that harm consumers. This can erode public trust in government institutions.

When consumers believe regulatory bodies aren’t acting in their best interests, they’re less likely to trust other government institutions as well.

Deception, exploitation, and unfair practices in financial systems can be very damaging. Especially when people have worked hard to meet their financial obligations under false pretenses.

And when you discover the truth, banks do all they can to avoid facing the consequences. Ducking for cover, using threats and intimidation… Even refusing to comply with their own “promises” and advertised “customer complaint” (Internal Dispute Resolution) processes.

Unfortunately, these behaviours are not uncommon when institutions face the prospect of accountability for deceptive practices. Such tactics can be intimidating and disheartening for those affected. Especially when it involves financial matters that can have a significant impact on people’s lives.

The case of Bates & Others v Post Office Ltd sheds light on the potentially devastating consequences of such issues. The sub-postmasters were wrongly accused of theft due to errors in the Post Office’s accounting software This led to significant harm to their financial situations, personal reputations and livelihoods.

It’s a stark reminder of the need for transparency, accountability, and robust checks and balances in any system where power dynamics are at play.

While it’s difficult to ascertain the exact prevalence of similar cases in the Australian banking sector, it’s reasonable to assume that issues such as these could occur in any industry… And often go unreported due to “gag” clauses or other barriers to speaking out.