A group of six banks have expressed concern over the Productivity Commission’s recommendations to establish a loan rate comparison tool for consumers, as they believe that doing so may mislead customers to the true cost of a product.
In its draft report on competition in the country’s financial system, the commission called for APRA to collect monthly data from mortgage lenders (ADIs and non-ADIs) on median interest rates for different categories of new residential home loans.
The commission also recommended that ASIC use the said data to develop an online tool that allows consumers to select different combinations of loan and borrower characteristics. The tool will also report median interest rates for loans issued in the previous month with those characteristics (by lender), and detail the specific fees and charges that would affect the total cost of a loan.
“The main problem with such tools is that they have a tendency to lead to ‘gaming’, whereby suppliers develop products that rate well on the tool, but have shortcomings in other areas,” said key officials of AMP, the Bank of Queensland, Suncorp, Bendigo Bank, MyState, and ME Bank in their joint response to the commission’s draft report.
According to the group, comparison tools have difficulty capturing the full benefits of a ‘bundle’ of services offered by a financial institution. They also said such tools provide an incentive for suppliers to increase costs for services outside the scope of required disclosures. In mortgages, for example, suppliers could shift costs to account closing or switching fees.
“The online tool would, in some respects, compete with the broker channel, particularly given the proposal is for the comparison tool to have the authority of a government agency standing behind it. Such an approach could potentially undermine the broker industry and eventually favour the banks with larger bricks and mortar networks,” said the lenders.
An interim report released last month by the Australian Competition & Consumer Commission found “less-than-vigorous” price competition in the residential mortgage market – especially between the big four banks.
“We do not often see the big four banks vying to offer borrowers the lowest interest rates. Their pricing behaviour seems more accommodating and consistent with maintaining current positions,” ACCC Chairman Rod Sims said.
“The discounting by the big banks lacks transparency and it’s almost impossible for customers to obtain accurate interest rate comparisons without investing a great deal of time and effort. But the potential savings from these discounts are immense,” he added.