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Consumers, banks and debt have an uneasy relationship. Peter Kell, Chief Executive of the Australian Consumers' Association talks us through the current realities – and what it means to be a responsible bank.

The household sector has increasingly and more directly become the "shock absorber of last resort" in the financial system.

A consumer advocate talking? No, it's the International Monetary Fund on how economic, demographic and policy changes have transferred financial risk onto consumers. This is clearly the case in Australia – rising consumer debt levels mean that we're more exposed to small increases in interest rate rises than ever before. And we're more exposed to market risks via compulsory superannuation.

For the IMF there are some clear implications. 'Households need to understand the financial responsibility they have to shoulder and have ready access to information – including unbiased and quality financial advice - about investment and saving options [and] products to manage their risks'.

Responsible financial institutions have a major role to play in helping consumers manage risk appropriately. Just as importantly, the activities of financial firms should not expose consumers to unnecessary or inappropriate risks. This is the essence of responsible banking.

Of course not all risks are bad. The ability of consumers to gain higher returns through sensible exposure to market risks – primarily through their superannuation investments – can significantly improve their financial outcomes. This will often require access to quality financial advice and access to well-priced appropriate products. Note the IMF's emphasis on unbiased financial advice. Are financial advisory models that embed conflicts of interest consistent with this approach?

Too often we've seen conflicts of interest deliver poor outcomes for consumers, placing them at risk of paying too much or of putting their money in inappropriate investments. Structural conflicts of interest that arise through commission payments immediately raise the issue – responsible to whom?

On the lending side, encouraging consumers to take on more debt inevitably exposes them to greater financial risk. Rising house prices have exacerbated this trend. A fully informed consumer with clear capacity to pay can decide to manage the risk and enjoy the benefits. But as the former Governor of the RBA noted recently, 'The new lending models used by banks seem to regard the bulk of income above subsistence to be available for debt-servicing.

The IMF's discussion of this issue is interesting. 'We were frequently told by market participants that very often the best advice for a retail client is to reduce debt levels; however, they added too often such advice is not given or strongly encouraged because "no one gets paid to tell a client to pay down debt".

This issue of consumer indebtedness is particularly acute for those on lower incomes or with lower levels of financial literacy. It is good to see recent initiatives around responsible lending. But much more can be done.

Unfair fees and charges also create disproportionate risks for vulnerable consumers. Penalty fees fall clearly into this category. The market does not solve this problem, as consumers don't factor penalty fee levels into their initial purchasing decisions. The choice therefore is corporate restraint or a regulatory response.

In essence responsible banking is even more important in an era of increasing financial risks and the ultimate measure of success is how corporate social responsibility (CSR) impacts on these "core" banking practices. Does CSR underpin the way you deal with all your customers on a day to day basis? If your competitors are using aggressive marketing g, aggressive sales tactics, or adopting more relaxed lending standards do you ignore them and risk losing market share? Or do you give up the notion of responsible banking and join the race to the bottom, while reserving CSR for the sidelines? Which is the more sustainable approach?

A recent commentator in the Australian Financial Review argued that, "the CSR formula usually produces some tokenistic philanthropy outside the firm's core activity, while its underlying worldview remains entirely unchanged." Genuinely responsible banking is the best response. If, you can help consumers manage risk better rather than contribute to inappropriate household financial risks, consumer trust will increase. Otherwise, there is the real possibility of a backlash.