The Federal Government has directed the ACCC to immediately commence an inquiry into home loan pricing. The ACCC is to investigate a wide range of issues ranging from the rates paid by new vs 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.
In addition, the inquiry will consider what prevents more consumers from switching to cheaper home loans. The ACCC will consider matters such as consumer decision-making and biases, information used by consumers and the extent to which suppliers may contribute to consumers paying more than they need to for home loans.
By holding an inquiry under Part VIIA of the Competition and Consumer Act (2010), the ACCC can use compulsory information-gathering powers to gather information from financial institutions including their decision making documents.
“Having consumers and the community understand how pricing decisions are made, why, and with what consequences is important for a well-functioning market,” ACCC Chair Rod Sims said.
“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.”
This inquiry will build on the ACCC’s Residential Mortgage Inquiry, a deep dive into the banks subject to the Government’s Major Bank Levy. This was followed by an inquiry into foreign exchange services.
“We will aim to provide answers to the questions that banking customers have long asked. For example, 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,” Mr Sims said.
“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.”
In undertaking this work, the ACCC will consult closely with financial regulators such as the Reserve Bank of Australia, the Australian Prudential Regulatory Authority, and the Australian Securities and Investments Commission.
The ACCC is expected to produce a preliminary report by the end of March 2020, with a final report due 30 September 2020.
More information is available at Home loan pricing inquiry.
The ACCC is currently undertaking inquiries into electricity, gas and water markets, and insurance prices in Northern Australia. Earlier this year it completed the Digital Platforms Inquiry.