ACCC to probe banks on loan-switching blocks

The ways banks make it hard to switch lenders to get a cheaper rate are now the subject of an ACCC probe.

The competition watchdog is investigating the strategies employed by the big four banks to “prevent or discourage” customers from switching to a more competitive lender.

Appearing before a Senate Estimates committee on Thursday, Australian Competition and Consumer Commission chairman Rod Sims said the regulator was interested in investigating “what are the barriers to consumers switching” banks.

“We’re all aware of that gap between what new borrowers and old borrowers pay. That is quite a considerable gap,” he said.

ACCC executive general manager, Marcus Bezzi, said the regulator was “particularly” looking into “strategies businesses employ to take advantage of consumer inertia and really prevent or discourage people from leaving”.

He said the regulator would examine whether “the price of switching is relatively high or the process of switching is relatively difficult”.

Josh Frydenberg directed the ACCC this month to investigate the pricing of residential mortgages as the sector continues to snub its nose at the Reserve Bank, despite an overall fall in funding costs for the banks.

Since May, the RBA has cut the cash rate by a cumulative 75 basis points. The average passed on by the market has been 57 basis points in a market worth $2 trillion, of which the big four banks command an 80 per cent share.

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The difference between the RBA rate cuts and those passed on by the banks is more than $500 a year for average owner-occupier home loans.

The ACCC has found a gap of 32 basis points in interest rates between the front and back books of the major banks charged to new and old customers, respectively.

However, the banks have said the gap is not as large as this figure.

The Council of Financial Regulators and the ACCC are developing an online tool to give greater insight into what are the actual interest rates charged to customers, following a recommendation of the Productivity Commission’s inquiry into Competition in the financial system. Following the collection of new data, the comparison tool and is expected to be available in 2020.

In August, the Morrison government got the Consumer Data Right (CDR) legislation through parliament, with the financial services sector the first to come under the purview of the data-sharing regime.

Under CDR, consumers will have more freedom to switch financial institutions, with the flexibility to be later extended to the energy and telecommunications sector as well.

However, the immediate focus will be on the banking sector, with the data-sharing regime paving the way for open banking.