‘Significant concern’ that banks misled mortgage customers

The House of Representatives Standing Committee on Economics delivered its third report last week based on its review of the four major banks. The June interest-only rate hikes were a point of much contention during the hearings in Canberra back in October.

While the media releases of the big four indicate that the rate increases were primarily, or exclusively, due to APRA’s regulatory requirements, the banks stated under scrutiny that other factors contributed to the decision.

“In particular, banks acknowledged that the increased interest rates would improve their profitability,” the committee’s report said.

“While it is accepted there may have been a range of factors that led to the banks increasing the interest rates of interest-only loans, there is significant concern that the public statements made by the banks may have led customers into believing that the interest rate increases were solely due to regulatory requirements.”

The committee has recommended that the Australian Competition and Consumer Commission (ACCC), which is already investigating the impact of the bank levy on mortgage pricing, also investigates the June rate hikes of the four major banks.

“It is important that this analysis is conducted at a sufficiently granular level to enable the ACCC to understand whether or not the banks’ internal financial analysis was consistent with their public statements,” the committee said.

The ACCC inquiry was established to monitor price decisions following the introduction of the Major Bank Levy. As a part of the inquiry, the ACCC can compel the banks affected by the levy to explain any changes to interest rates in relation to residential mortgage products.

The inquiry relates to prices charged until 30 June 2018.

The committee recommends that the ACCC analyse the banks’ decisions to increase interest rates on existing borrowers despite APRA’s measure only targeting new borrowers.

“Further, the ACCC should consider whether the banks’ public statements adequately distinguish between new and existing borrowers.

“The ACCC should consider whether the media statements suggest rates on existing interest-only mortgages rose as a direct consequence of APRA’s regulatory requirement. It will be important that the ACCC conducts granular analysis of the financial modelling of the banks.”

The committee said that the ACCC will need to understand the true financial impact on the banks of APRA’s regulatory changes, and assess that impact against the public statements of the banks.

[Related: New reforms see ACCC target major bank mortgages]