If the banks were not prepared to continue the banking ombudsman scheme through self-regulation, governments across Australia would need to consider legislation, Consumer Affairs Minister Yvonne Henderson said today.
Mrs Henderson lashed plans by the banks to water down the powers of the ombudsman.
She said proposals to prevent the ombudsman ruling on some issues were contrary to the spirit of the scheme when it was set up.
"It will also work against the interests of the banking industry, as well as the broader community," she said.
Mrs Henderson has written to Sir Ninian Stephen, chairperson of the Australian Banking Industry Ombudsman Limited Council, expressing strong opposition to any diminution of the ombudsman's powers.
"The ombudsman's caseload is clear evidence of shortcomings in the banks' treatment of their customers," the Minister said today.
"The ombudsman has been an outstanding success, and the banks got considerable kudos in setting up the scheme, but now that some decisions have gone against them, they want to take their bat and ball and go home.
"There have been reports that the banks want to reduce the importance of the 'fairness' principle in determining a dispute.
"This is the major criterion used by the ombudsman. Do the banks wish to acknowledge that they do not have to be fair in dealing with customers' concerns?"
Mrs Henderson said it had also been reported that the banks wished to stop the ombudsman from being able to rule on the issue of third-party cheques.
"The ombudsman has ruled that if a cheque written to a party goes into the account of another person, the bank concerned should be responsible," she said.
"This is logical and fair, as far as the vast majority of people are concerned. For the banks to argue that they should not be responsible in this matter is incomprehensible.
"Decisions by the ombudsman have seen the return of substantial amounts of money to consumers.
"If the scheme goes, people will have no other way to address their concerns against the power of these huge organisations.
"Legislation will then have to be considered."