The Australian Competition and Consumer Commission (ACCC) is set to “immediately commence” an investigation into home loan pricing, as directed by the government.
The ACCC will investigate a wide range of issues, ranging from the rates paid by new versus existing customers, how the cost of financing for banks has affected bank decisions on interest rates, and why RBA cuts aren’t always passed on in full.
Further, it will investigate how the prices charged for residential mortgages are set, breaking down its focus on major banks, smaller banks, and non-bank lenders in turn.
“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,” said ACCC chair Rod Sims.
The inquiry will also examine what prevents more consumers from switching to cheaper home loans through studying consumer decision-making and biases, information utilised by consumers and the extent to which suppliers contribute to consumers paying more than necessary for home loans.
Sims added, “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 is able to use “compulsory information-gathering powers” to obtain data from financial institutions, through holding an inquiry under Part VIIA of the Competition and Consumer Act (2010).
“We will aim to provide answers to the questions that banking customers have long asked,” said Sims.
“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.
“Having consumers and the community understand how pricing decisions are made, why, and with what consequences is important for a well-functioning market.”
The ACCC will consult closely with financial regulators such as the RBA, APRA and ASIC.
The preliminary report is expected by the end of March 2020, with a final report due 30 September 2020.