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ACCC Inquiry into home loan pricing

The competition regulator has been charged with looking into home loan pricing of the banks and the final report is expected less than year from now in 2020.

The issue of banks failing to pass on the benefits of the Reserve Bank of Australia (RBA) rate cuts has been in the media for weeks; however, after industry seemingly ignored a call from the Prime Minister, the Government has the charged the Australian Competition and Consumer Commission (ACCC) with looking into home loan pricing.

The spend on this inquiry will come out of the $13.2 million the Government has already dedicated to the ACCC to conduct inquiries into competition issues in the financial system.

All this also comes after the passing of the legislation for the Consumer Data Right, the phased banking licensing regime, and access for cooperatives and credit union to capital to better compete with the incumbent banks.

According to the Government’s press release early Monday morning, the inquiry will improve the transparency of the pricing regime by:

  • Investigating the prices charged for residential mortgages across the entire market, including by major banks, smaller banks, and non-bank lenders,

  • Considering how banks make pricing decisions, including passing on movements in the official cash rate,

  • Examining differences in the prices paid by new and existing customers,

  • Examining differences between the reference interest rates published by suppliers and the interest rates paid by customers, and

  • Investigating barriers that may prevent consumers from switching lenders.

The ACCC Chairman Rod Sims said, in the regulator’s own official statement on Monday morning, that consumers’ understanding of the industry’s pricing decisions is ‘important to a well-functioning market’.

“We will aim to provide answers to the questions that banking customers have long been asking. 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,” Sim said.

According to the regulator, this inquiry builds on the residential mortgage inquiry report published almost a year ago last December, and will help explain why consumers are not switching providers despite the potential savings.

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