Saturday, February 09, 2008

Swan takes action on mortgage switching, sort of

The Treasurer Wayne Swan has launched an inquiry into bank exit fees and a package of measures to smooth the process of switching between banks as yet another bank defied him and lifted its mortgage rate by more than that mandated by the Reserve Bank.

The National Australia Bank late yesterday boosted its standard variable mortgage rate by 0.29 per cent – 0.04 per cent more than the 0.25 per cent hike instigated by the Reserve Bank on Tuesday.

It followed the lead of the Commonwealth Bank, which on Wednesday boosted its standard variable rate by 0.30 per cent – 0.05 per cent more than prompted by the Reserve.

At that time Swan described the Commonwealth Bank’s decision as “completely unacceptable” and its customers would be “rightly furious”...

While the National Australia Bank was announcing its decision on Friday afternoon Mr Swan was locked in talks with the heads of the Treasury, the Reserve Bank, the Securities and Investments Commission and the Prudential Regulation Authority drawing up a package of measures to force the banks to make switching easier.

After the latest increases the Commonwealth and Westpac are charging 8.97 per cent (up 0.30 and 0.25), the National Australia is charging 8.98 per cent (up 0.29) and the ANZ and St George are each charging 9.02 per cent (up 0.25).

But the ANZ bank says that adjusted for service fees and loan approval fees, its product is the cheapest of the big five, with its so called “comparison rate” working out at 9.07 per cent, well below the 9.18 per cent charged by Westpac and St George.

Mr Swan told the Canberra Times after the meeting that it was more important than ever that customers were able to “vote with their feet” to get he best possible price.

It was important that had information about their mortgage charges, including entry and exit fees, and were able to compare them. It was important too that they be able to switch between banks easily.

The four-point package drawn up by the Treasurer in co-operation with the Reserve Bank, APRA, ASIC and the Treasury will require lenders to set up a central “listing and switching” service that will make the process of changing mortgage providers as simple as possible.

The service will be able to obtain from each lender a list of each customer’s direct debits and credits over a 13-month period and pass it on to any new lender that takes over their mortgage.

The listing and switching service will also ensure that lenders provide their customers with information on how to avoid exit fees and don’t charge those fees unfairly.

Mr Swan said that while he expected the computer systems to be fully operational by November he would ensure than an interim paper-based service was running within weeks. It would be supervised by the Reserve Bank.

The Treasurer has also directed the Securities and Investments Commission to inquire into mortgage entry, exit and early termination fees in order to “shine a light” on charges and rates and expose them to downward pressure.

In addition he has asked ASIC to set up a central consumer complaints hotline for banks and has asked the Financial Literacy Foundation to set up a website providing advice on how to switch between banks and the costs of switching.

The Opposition’s Treasury spokesman Malcolm Turnbull yesterday offered support to the Treasurer.

“Anyone who provides services is always going to try to make their customer relationship a sticky one, it is up to governments to do whatever they can to free the market up,” he said.