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Big bank CEOs deny ‘loyalty tax’ accusations

by Charbel Kadib12 minute read
Shayne Elliott and Philip Chronican

The chief executives of the big four banks have doubled down in defence of their mortgage pricing decisions after being accused of profiting off a “loyalty tax” imposed on customers.

Appearing before the House of Representatives standing committee on economics on Friday (15 November), NAB chairman Philip Chronican and ANZ CEO Shayne Elliott denied that the banks have been “profiting from inertia” by charging existing mortgage customers higher rates in a lower rate environment.

Deputy chair of the committee and Labor MP Andrew Leigh accused the banks of imposing a “loyalty tax” on existing borrowers, which do not receive rate discounts offered to new customers.  

In response, NAB chairman Philip Chronican said there were a range of factors influencing the bank’s pricing decisions, adding that the level of discounting on a particular loan was determined by the characteristics of the credit contract.   


“On our variable rate mortgage products, we charge different rates for different products for a whole range of reasons,” he said.

“The overwhelming majority of our variable mortgage rate customers, in fact, 97 per cent, have discounts below the standard variable rate, and each of those discounts are set with reference to the riskiness of the loan, the size of the loan, and the combination of business that the customer brings in. 

“The discount is for the life of the loan, unless of course the customer, at their discretion, comes back and wants to reunite with us or refinance with another organisation if they can get a better deal.”

Mr Chronican said that in light of cuts to the cash rate, the bank has offered existing customers reviews of their home loans.

“We offer all of our customers a review of their mortgage and have called all of our customers over the past 12 months, asking if they’d like a review of their mortgage,” he said.

“In the month of October alone, 15,000 customers took advantage of that and we increased the discount on those.”

However, deputy chair of the committee Andrew Leigh pressed Mr Chronican, asking: “Why is it that customers have to respond to a request for a review rather than simply receiving the same rate as a new customer would get? Aren’t you profiting from inertia?”

To which Mr Crhonican responded: “It doesn’t exactly feel like that. It’s a competitive market to get new business. 

“We are accurately conscious that we want to retain our customers, but as I’ve explained, the differences are not as great as many people make them out to be.

“We compete at a point of time to get a customer, and we quote a discounted rate to get them and be competitive.”

He conceded: “We are conscious that overtime, those rates become uncompetitive, but [it’s] hard to have an individual negotiated rate if everybody has to get the same rate.”

Meanwhile, ANZ CEO Shayne Eliot flatly rejected claims that the bank has been charging a loyalty tax, also citing competitive pressures.

“I don’t accept the concept of loyalty tax. What we do is we competitively priced our products every day to offer the best price that we can for the services that we provide,” he said.

“Given the nature of our products, you will no doubt be referring to that there is a difference between what is known as the front book and the back of book; the pricing that we charge a new customer today versus the customer yesterday, or previously.

“But we don’t impose a tax. It’s an outcome of a highly competitive well-functioning market.”

When asked if it was “unusual” to charge customers different prices for the same product, Mr Elliott said: “Well, it’s not the same product, with respect. A mortgage today is not the same as a mortgage tomorrow or week ago.

“We price mortgages on the day based on the environment they’re in, the cost of funds on that day, the risk environment on that day and the competitive environment on that day, so I’m not sure that they are equivalent products.”

Scrutiny over the pricing behaviour of the big banks recently intensified following their failure to pass on the RBA’s full 25 basis point cuts to the cash rate.

This triggered Treasurer Josh Frydenberg to commission the Australian Competition and Consumer Commission (ACCC) to conduct a Home Loan Price 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.

[Related: We’re not to blame for slower processing times: ASIC

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Charbel Kadib


Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

Email Charbel on: [email protected]

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