Thursday, November 11, 2010

Banks to public: We'll do what we like

Oh, thanks for the guarantee

Commonwealth: up 0.45 points to 7.81%

ANZ: up 0.39 points to 7.80%

Westpac under review, 7.51%

St George under review, 7.43%

National Australia Bank under review, 7.24%

The ANZ Bank has defied the Treasurer and inflamed the debate on banking, joining the Commonwealth in lifting its mortgage rate by around double last week’s official move.

The country’s fourth biggest lender lifted its standard variable rate 0.39 points to 7.80 per cent, putting it just a faction behind the Commonwealth's 7.81 per cent, achieved with an increase of 0.40 points. Had each bank merely lifted its rates 0.25 per cent in line with the Reserve Bank it would be charging 7.61 and 7.66 per cent.

The difference, on a $300,000 mortgage amounts to $37 per month.

But in a sign that public outcry over banking may be having an impact, ANZ tried to soften the blow by removing mortgage exit fees and other charges, which it said would make it easier to switch banks.

The bank made the announcement while Treasurer Wayne Swan was en route to South Korea for an international finance ministers meeting. Contacted on touching down his spokesman was unaware of the ANZ's move and asked The Age for details...

Coalition Treasury spokesman Joe Hockey said the ANZ had delivered the ultimate slap in the face to Mr Swan who had briefed newspapers that he had rung the ANZ, NAB and Westpac chiefs urging them not to follow the Commonwealth Bank's lead.

"They are ignoring him," Mr Hockey told The Age.

"There's so little competition out there the ANZ feels it can nearly double the Reserve Bank increase and then made it easier for its customers to move."

"They've doubled the rate and then opened the door."

Finance Minister Penny Wong said the ANZ had not learnt "the lessons of this last week, and is not listening to the Australian people".

"We are likely to see the same sort of public hostility to this decision today as we have seen to the decision of the Commonwealth Bank. It is another case of the big banks showing disregard for their customers and putting profits before customers and before the community’s standards."

As the ANZ jacked up its rate, the government was detailing a new legal threat to banks that charged unfair exit fees.

The Australian Securities and Investments Commission published tougher than expected guidelines on what it will define as an "unfair" home loan exit fee. The legal threat, coupled with ANZ’s scrapping of fees, is expected to force the other big three lenders to also remove the unpopular charges.

Exit fees – where borrowers are charged $700 and $900 among the big banks for leaving a loan in its first three to five years – have been blamed for a lack of competition in the industry.

The chairman of ASIC, Tony D’Aloisio, said the regulator would challenge banks to justify their exit fee charges, threatening legal action where the fee did not reflect losses to the bank.

‘‘Where an exit fee cannot be justified by the lender, ASIC will take compliance or enforcement action.’’

Before ASIC’s guidelines were made public ANZ revealed it would scrap its exit fee of $700.

The chief executive of the Australian Bankers Association, Steven Münchenberg, said ANZ’s move to scrap exit fees was proof that competition was alive and well in the banking industry.

But he conceded the policy would force banks to review what they charged customers, and was likely to put the most pressure on non-bank lenders who charge the highest exit fees.

‘‘What we’ve seen in the past is that where a bank has cut an unpopular fee the other banks have all responded in kind,’’ Mr Münchenberg said.

The other big banks did not comment on their plans for exit fees.

Although most community anger over lending has been directed at the big banks, a study from Melbourne Law School this year found the worst offenders were non-bank finance companies, which charged exit fees up to $5000.

The tough new guidelines are part of consumer credit laws introduced in July, which say a bank can only use exit fees to recover costs, not make a profit.

On a $300,000 mortgage

Reserve Bank 0.25 rise: $49 extra per month

CBA customers will pay: $88 extra per month

ANZ customers will pay: $76 extra per month

Published in today's Age

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