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The Productivity Commission has bemoaned “opaque practices” in the banking industry that harm consumers. In its report on competition in the financial system, the government body cited the absence of public data on actual prices as a “distinguishing feature” of the industry.
For example, it said the standard variable home loan interest rate advertised by ADIs bears no resemblance to the actual interest rates offered to potential borrowers, as the vast majority of consumers pay less than this rate.
The interest rate offered to a borrower is only revealed once they are well into the application process, it added. Home loan packages that bundle home loans with other financial and credit products, such as offset accounts and credit cards, further obscure the actual value and comparability of individual components.
In effect, the report claims that the opaque pricing is a significant factor in keeping consumers unsure of their position and more dependent on advice. “And brokers are often also not able to offer a full range of products. Even where they are able to present a wide variety of options to consumers, in the case of mortgage brokers and aggregators, they currently remain under no legal or contractual obligation to act in the customer’s best interest,” the commission said.
The report also said comparison tools used banks and brokers are “not representative” of the rates actually paid. “This is an unusual market indeed, when consumers are conditioned to expect a discount (of an uncertain size) from a published comparison rate, but that rate is not usually the market price for that borrower,” it added.
The commission called for APRA to continuously collect home loan interest rates that have been negotiated. These rates made accessible to consumers via an online calculator, by ASIC (with an elapsed time of no more than six weeks).
“Consumers would be able to see the market median interest rate offered to all home loan borrowers in similar circumstances to them. The specific loan and borrower characteristics that are included in the online calculator should be developed through consultation and consumer testing,” it added.
