Government change to discharges ‘doesn’t go far enough’: Associations

The Albanese government has confirmed that it will adopt some of the recommendations from the Australian Competition & Consumer Commission (ACCC) Home Loan Price Inquiry.

The long-awaited response to the Home Loan Price Inquiry has been met with disappointment from the broking industry, which has long been calling for improvements to the discharge process.

Indeed, the recommendations put forward by the ACCC in its Home Loan Price Inquiry were wider-reaching and more specific. The four changes that could make mortgage pricing more transparent and reduce barriers to switching were:

• An annual prompt for variable-rate borrowers who took out a loan three or more years ago that would encourage customers to contact their existing lender to ask for a better rate and “also encourage borrowers to contact their mortgage broker”.
• A standardised ‘discharge authority’ form that is easy to access, fill out, and submit, using an identical standard form template rather than agreeing to common criteria.
• A maximum time frame of 10 business days to complete the discharge process.
• Continued monitoring of competition and prices in the home loan market.

However, Treasurer Jim Chalmers has only made one change to discharges, which is to “ensure customers have direct and easy access to the forms needed to exit a mortgage” (i.e. discharge forms).

Speaking to Mortgage Business about the decision, the CEO of the Mortgage & Finance Association of Australia, Anja Pannek, stated that while the association was
“pleased to see the Government take action to improve transparency in financial products and making it easier for consumers to switch home loan providers”, it believed these changes “should go further”.

Pannek said: “The move to require lenders to make home loan discharge forms easy to access is a positive step.

“However, lenders are, in many cases, not allowing mortgage brokers to act on their client’s behalf in the loan discharge process, even when the client has given their consent.

“There is no reason a mortgage broker shouldn’t be able to manage the loan discharge process on behalf of their client when the client gives consent.

“This could be as simple as creating space on the loan discharge form for a customer to provide consent for their broker to act on their behalf.”

The MFAA reiterated its position from its Towards a faster, smoother home loan discharge: Benefits for borrowers white paper, released earlier this year, in which the body also called for a 10-day time limit to be introduced to the discharge process “so borrowers are not paying more due to unnecessary delays” and for lenders to have a “consistent form”.

“Our advocacy is about removing friction in the loan discharge process. In addition to discharge forms that are hard to find and difficult to complete, lenders are making it hard for borrowers to switch in other ways that need to change,” she said.

“Lenders are not putting their best foot forward when existing customers, and their brokers, ask about repricing, coming in with last-minute offers after a mortgage broker has done the work to find a better loan for their client.

“This makes the process more confusing for borrowers, and in the midst of a cost-of-living crisis it is only right that it becomes easier for them to refinance their home loans, not harder.”

Pannek added that the association would continue to work closely “to ensure the implementation of the Treasurer’s announcement reflects the interests of our members”.

Similarly, FBAA managing director Peter White AM, told Mortgage Business he was dismayed that the government had not done more to improve the discharge process.

He flagged that the association has long been advocating an improved discharge process, flagging that these forms need to be digitised and standardised.

White said: “It is crazy to ask for wet signatures on bits of paper to discharge a loan. While some of the mortgage process was digitised during COVID-19, many of these changes were just temporary measures. These things need to be permanent measures.

“This step, in my mind, is the first one before having a standardised discharge form across the whole industry. Because it’s one of the crazy things in the market where every lender has a discharge form and insists you must use those.

“So while this is a positive thing for the industry, the moves do not go far enough yet.

“The FBAA is supportive of these first steps and we look forward to having greater detail than what we’re seeing at the moment.”

As well as making discharge forms more easily accessible, Treasurer Chalmers also recently announced that the government would:

• Make banks tell customers when their interest rate changes on their transaction or savings account and improve disclosure requirements for basic deposit products.
• Work with banks to help enhance how customers are notified about bonus interest rate offers and when an introductory lower interest rate period ends.
• Require financial product comparison websites to better disclose what determines how products are ranked and the financial relationships they have with recommended product providers.
• Ask Treasury to investigate how behavioural economics and prompts could be used in the banking sector to encourage consumers to switch to cheaper home loans and retail banking products.

[Related: What’s taking the government so long to fix mortgages?]