ACCC open to new review of mortgage market to tackle loyalty tax

Watchdog is open to a review addressing the higher rates paid by existing home loan borrowers compared to new customers.

ACCC chair Gina Cass-Gottlieb pictured at her offices in Sydney. Picture: Sam Ruttyn

The competition regulator is open to conducting a new review of the mortgage market, three years after it first said banks should be forced to prompt their own customers to think about refinancing their home loan if their rate was not competitive.

Speaking at a parliamentary hearing on Friday, Australian Competition & Consumer Commission chair Gina Cass-Gottlieb said the recommendation continued to have merit in helping bank customers not pay a so-called “loyalty-tax”, despite bank executives saying the recommendation is no longer relevant to the current market settings.

A 2020 report to the Morrison government said existing bank customers paid a loyalty tax as they were not offered the same lower rates that new customers got, a situation that continues to occur today.

The recommendation to actively notify home loan borrowers of their rates and available lower rates may prompt them “to move to another bank that might compete more seriously for them … and those continue to be important provisions that we think would make a difference,” Ms Cass-Gottlieb said.

Existing bank borrowers in July paid interest rates that on average were 28 basis points higher than those paid by new customers, according to the Reserve Bank of Australia. That is down from the 50 basis points extra they were paying in January.

Her comments follow statements from the bosses of the five biggest banks who told the House inquiry into promoting economic dynamism, competition, and business formation that the ACCC findings in the 2020 report were effectively dated.

“Noting the statements that were made, which at first blush we paused at – that the circumstances are so different it would no longer be relevant. We don‘t consider that’s the case,” Ms Cass-Gottlieb said.

“But it would be valuable to investigate and test it, if that is or is not the case.”

“Banks see that at the time we made the recommendation, the time was different, there were more variable rates. We‘ve gone through a period of fixed rates. Mind you, all of us would be aware that a number of people have come off fixed rates into variable rate environment in which it would continue to be appropriate,” she said.

In light of those views by the banks, Ms Cass-Gottlieb said the regulator would be open to “retesting” the market, if the Albanese government required it.

“We do think there would be value in re-testing these questions in the home loan environment and that is something that we would need the government to determine that was a value and to then direct us to do so.”

The ACCC is currently conducting an investigation into the deposit market, including the way and timing of the banks’ pricing decisions. The regulator is due to report its findings by the end of the year.

In their own appearances at the House committee, bank executives argued customers were much more engaged in their finances in the current environment with higher interest rates, as many were forced to refinance their expiring fixed-rate loans and a proportion of them were asking for better deals.

Matt Comyn, the CEO of Commonwealth Bank, the nation’s largest lender, told the committee in July that prompting customers would not make a material difference because the market had “changed dramatically from when the ACCC report was originally done”.

“I accept that these sorts of initiatives are really to try and address hopefully the small proportion of people who are disengaged and that we‘re not engaging with,” Mr Comyn told the committee. “We’re happy to look at it. I question the value of it, but I understand that reasonable minds may differ.”

“It‘s never been easier for people to be able to switch. Obtaining information has ever been easier in terms of transparency, comparison sites and digital direct propositions … So I’m very confident that the market has changed quite a bit since that ACCC report was conducted.”

The regulator also highlighted its view that competition in the mortgage market was unlikely to persist, something it also highlighted when it decided to block ANZ’s $4.9bn purchase of Suncorp bank last month.

ACCC commissioner Peter Crone said that while there was “some evidence of increased competition recently,” including through cash back offers, the regulator was “not persuaded that was going to continue.”

“In fact, you have even seen some recent commentary from bank chief executives that they are stepping back from these aggressive promotions as well – I think highlighting the lack of competitive pressure there.”