FBAA backs new mortgage pricing inquiry

The inquiry will review pricing behaviour from 1 January 2019 to examine:

• the differences between advertised rates and the prices actually charged or paid;
• the differences between rates paid by existing customers and those paid by new customers (front and back-book pricing behaviour);
• pricing decisions in response to changes to the official cash rate; and
• factors preventing customers from switching to cheaper home loans.

In exploring these matters, the ACCC will consider consumer decision-making and biases, information used by consumers and the extent to which lenders may contribute to consumers paying more than they need to for home loans.

The ACCC noted that it can use compulsory information-gathering powers under Part VIIA of the Competition and Consumer Act (2010) to gather information from financial institutions, including their decision-making documents.

Following the announcement, ACCC chair Rod Sims commented: “Having consumers and the community understand how pricing decisions are made, why and with what consequences is important for a well-functioning market.

“We are looking forward to examining how banks make these crucial decisions. It will be important to understand and examine the different factors that financial institutions take into account when setting their prices.”

According to the competition watchdog, the new inquiry will build on its Residential Mortgage Inquiry, in which it accused the major banks of ‘synchronised’ pricing behaviour.

“We will aim to provide answers to the questions that banking customers have long asked,” Mr Sims added.

“For example, we know from our first financial services inquiry that there is an unusually large difference between the headline rate and the actual rates many customers are paying, which can be confusing for consumers.

“It is also very difficult for customers to find out what mortgage rate they could pay with another financial institution, without going through a lengthy and time-consuming application process.”

He concluded: “We have evidence that customers can save considerable money by switching providers, and we want to fully understand what the barriers are that stand in their way, particularly barriers created by the banks.”

The ACCC added that it would consult closely with financial regulators including the Reserve Bank of Australia (RBA), the Australian Prudential Regulatory Authority (APRA), and the Australian Securities and Investments Commission (ASIC) throughout the inquiry.

This comes amid criticism of the banks from Mr Frydenberg for their failure to pass on the RBA's full 25 basis-point cuts to the cash rate.

“The banks have a lot of explaining to do,” Mr Frydenberg said. 

“This is very disappointing by the banks, and customers should vote with their feet.”

The Treasurer encouraged borrowers to consider switching to alternative lenders with lower mortgage rates. 

“Now, some of the smaller lenders have actually passed on this rate cut in [full],” he said. 

“People should shop around, get the best deal, but also make their displeasure known to their banks because the rate cuts should be passed on in full, and that would be a good thing for consumers.”

Mortgage industry stakeholders, including the Finance Brokers Association of Australia (FBAA), have welcomed the ACCC’s new inquiry.  

FBAA managing director Peter White said the inquiry is “appropriate”, stating that it is time for all banks to be “far more transparent and accountable”.

“I’ve been calling on the banks for a long time to pass on interest rate cuts in full, and of course the latest was just two weeks ago,” he said.

Mr White echoed Mr Frydenberg’s criticism of the banks’ response to cuts to the official cash rate.

“The banks have been playing some sort of seesaw game where they will pass on a little bit this time and then a bit more – or a bit less – the next time,” Mr White said.

“There’s a pattern of behaviour here that Australians are clearly not happy with.”

The FBAA head accused the banks of passing on compliance costs to their customers.  

“Trying to balance the books by passing on these penalties is not something that should be borne by borrowers,” he said.

“You would think given the commentary and the whole focus around the banking sector, that they would be doing their utmost to regain trust with the public.

“This inquiry provides an opportunity for banks to be transparent around their decision making and how they balance the needs of the community.”

The competition watchdog is expected to hand down a preliminary report by 30 March 2020, with a final report due by 30 September 2020.

[Related: Treasurer blasts big four for failing to pass on full cut]