The non-major bank is to review the personal circumstances of each customer affected by its controversial change to redraw limits, following widespread criticism of the move from customers and brokers alike.
Over the weekend, mainstream media outlets broke the news that super fund-backed lender ME Bank had reduced the amount borrowers could redraw from specific mortgage products without forewarning customers.
While ME Bank’s terms and conditions do enable them to make such changes (the T&Cs include a section that states that if the bank changes a condition or term of a loan contract that reduces the borrower’s obligation, they will only notify them of the change before – or when – they are sent the next statement of account following the change), the move has been met with widespread criticism.
Many customers have taken to social media to lambast the bank for failing to notify them of the change. For some customers, the change has reportedly meant that they are unable to access money that they had hoped to later withdraw – in some cases thought to be tens of thousands of dollars.
The CEO of the Mortgage & Finance Association of Australia (MFAA) told The Adviser that the association “has been in discussion with ME Bank on this matter to express [its] concern on the impact to customers and to better understand what has occurred”.
Mr Felton said: “Many customers will be feeling financially vulnerable right now, and finding out that the amount available under their redraw facility has unexpectedly been reduced will no doubt have come as a shock.”
He added that the bank had told the association it was “working on rectifying the matter and that they will be proactively working with affected customers to, where possible, remedy the situation”.
The FBAA was also contacted for comment but – due to the public holiday in Queensland – was unable to provide a comment before publication.
Brokers ‘bitterly disappointed’
Several members of the broking industry have also voiced their concern – and, in some cases, outrage – in relation to how the move was handled.
Speaking to The Adviser, Atelier Wealth managing director and finance broker Aaron Christie-David said he “shared the public’s anger not only because of [ME Bank's] timing, but their lack of communication”.
The Sydney-based broker said that as a mortgage broker, he was “bitterly disappointed” by the move for two main reasons: the lack of communication and the incongruity with the bank’s brand messaging.
He explained: “As broker partners, there has been no specific communication about what they did, who this has impacted, and if we have customers affected, then who to contact internally. We pride our service on continuing after settlement, but it is hard to give an update when we are left in the dark.
“Instead, we received ME Bank’s standard Monday email update with no mention at all on their recent decision to reduce redraw,” Mr Christie-David said. [However, the bank has since issued a communication to brokers].
He added that he also believed that while the bank has “pitched themselves as a customer-friendly alternative to the big banks”, he thought that “their conduct suggests they are no better”.
“It makes it very hard for us to be an advocate for particular lenders when their actions do not align to their marketing messages. A common question I get as a broker is the benefit of redraw compared to an offset account, and 95 per cent of the loans we do are under a package (with an offset).
“It is this very reason that we are huge advocates for an offset account rather than relying on redraw. We saw the Commonwealth Bank make changes to their redraw processes in September 2018, which caught borrowers unaware. Our stance has been quite simple: pay the annual fee and get an offset account/s. Relying on redraw is risky when you don’t get to control your own funds – this is proof that banks will often do what is best for them, not for their customers.”
Loan Gallery broker development and operations manager Mark Guglielmino also reportedly told the AFR on Monday that the move was “disappointing at best and unethical at worst”, outlining that the changes “could have been handled better”.
ME Bank apologises to customers
Indeed, ME Bank has released a statement outlining that the change was made after the bank “identified the redraw facility on some legacy home loans (a portion of legacy loans written more than five years ago) could lead to some customers falling behind their original repayment schedules”.
The bank’s statement reads: “The redraw facility gives customers access to payments that they have made ahead of their repayment schedule.
“By not reducing the available redraw amount over time, customers could overuse the redraw to a point where they could fall behind their original repayment schedule. This can put customers at risk of not meeting their repayment commitments, potentially leaving them open to financial hardship at the end of the loan term.”
ME Bank emphasised that no money had been removed from customer accounts, instead the adjustment was made to the amount borrowers could withdraw from their mortgage.
“We understand that the change has caused concern to some customers, particularly in the current environment.
“We are reviewing the personal circumstances of each customer affected and are committed to working with them to determine how we can help with their individual financial needs,” it continued.
“ME is in the process of contacting affected customers to see if any support is required and offering options such as: rearranging financing at the bank’s cost for customers whose redraw limits have been reduced, and offer customers access to the three and six-month repayment holidays.”
In its broker communication, the bank added: "ME is committed to helping the needs of all Australians with the dream of home ownership, and our partnership with mortgage brokers remains a fundamental element to achieving this objective."
On Facebook, the bank went a step further by apologising to customers.
The bank has now extended its call centre hours and made more of its team members available to provide further customer support.
“We are committed to working with every customer who needs our support,” the statement concluded.
The MFAA has said it has also been in discussions with other lenders to “ensure that recent changes to repayments do not create other unexpected redraw issues and have so far been comfortable with the responses received” and, on Monday (4 May), Westpac CEO Peter King told journalists that reducing redraw limits “hasn’t even crossed [his] mind, and it’s not something [Westpac will] be doing”.
Mr Felton commented: “While it is to be expected that a redraw balance can diminish over time as a loan amortises, what we need to be avoiding is unexpected material changes to available liquidity that customers have been depending on.”
[Related: Non-majors announce loan relief packages]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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