While saying that it supports most of the Productivity Commission’s recommendations on competition in financial services, CBA cautioned yesterday over proposals regarding home loan interest rates and mortgage aggregators and brokers.
The commission was on its second day of public hearings on competition in the financial services industry, with major banks CBA and NAB participating.
CBA’s chief financial officer, Rob Jesudason, said the commission’s proposal to develop an online tool for reporting median interest rates on housing loans will likely have a number of significant unintended consequences.
“Mortgage pricing is determined by a number of factors, including a risk assessment of individual customers and external factors such as wholesale funding costs. Publishing historical median interest rates without the relevant personal context could mislead customers.”
The commission called for transparency in interest rates for home loans. It recommended that using APRA’s data, ASIC should develop a tool that allows consumers to select different combinations of loan and borrower characteristics, and reports median interest rates for loans issued the previous month with those characteristics.
CBA also expressed objection to the recommendation related to mortgage aggregators and brokers – on the basis that it does not apply to all players.
“We support any recommendation that aims to protect customers and puts their interests first. Our objection to the recommendation as currently expressed is it applies only to aggregators owned by lenders,” said Jesudason.
“We support equal treatment.”
The commission has highlighted in its draft report the dominance of bank-owned aggregators and how this causes conflict of interest and is not in the best interest of consumers.
It estimated that banks’ broking aggregators have about 70% of the home loan broking business.
Citing CBA’s case, Productivity Commission chairman Peter Harris said at an event on Monday that in 2015, the bank had a 21% overall market share of the broker channel, but it had a 37% share through its aggregator Aussie Home Loans.
“Consequent or not, in-house products appear to dominate disproportionately the outcomes for borrowers who use bank-owned aggregators,” he said.
Meanwhile, NAB stressed that the Australian financial market is already competitive, saying that this year, “the level of competition in the market is truly intense”.
“In addition to established competition from the 148 ADIs and other non-ADI lenders in the market, we are now seeing the emergence and rapid growth of new competitors such as fintechs and tech giants,” said NAB chief operating officer Antony Cahill.
The public hearings will resume on Monday, 5 March, in Melbourne.