The Meeting Place

Big banks face interest rate investigation

The Federal Government has directed the Australian Consumer and Competition Commission (ACCC) to immediately commence an inquiry into home loan pricing.

The ACCC is to investigate a wide range of issues ranging from the rates paid by new vs existing customers, how the cost of financing for banks has affected bank decisions on interest rates, and why RBA cuts aren’t always passed on in full.

In addition, the inquiry will consider what prevents more consumers from switching to cheaper home loans.

The ACCC will consider matters such as consumer decision-making and biases, information used by consumers and the extent to which suppliers may contribute to consumers paying more than they need to for home loans.

The ACCC can use compulsory information-gathering powers to gather information from financial institutions including their decision making documents.

“Having consumers and the community understand how pricing decisions are made, why, and with what consequences is important for a well-functioning market,” ACCC Chair Rod Sims said.

“We are looking forward to examining how banks make these crucial decisions. It will be important to understand and examine the different factors that financial institutions take into account when setting their prices.”

This inquiry will build on the ACCC’s Residential Mortgage Inquiry, a deep dive into the banks subject to the Government’s Major Bank Levy. This was followed by an inquiry into foreign exchange services. 

“We will aim to provide answers to the questions that banking customers have long asked. 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,” Mr Sims said.

“We have evidence that customers can save considerable money by switching providers, and we want to fully understand what the barriers are that stand in their way, particularly barriers created by the banks.”

In undertaking this work, the ACCC will consult closely with financial regulators such as the Reserve Bank of Australia, the Australian Prudential Regulatory Authority, and the Australian Securities and Investments Commission.

The ACCC is expected to produce a preliminary report by the end of March 2020, with a final report due 30 September 2020.

More information is available at Home loan price inquiry.

Do you think this investigation will finally lead to banks changing their processes, or will we still get more of the same?

8 comments

This will be a complete waste of time and taxpayers money. Since Hawke and Keating deregulated the banking industry in the 1980's, banks have been autonomous and cannot be directed by anyone other than shareholders on how to run their business. Sure, the last Royal Commission was able to disclose illegal practices but that was when some banks broke the law and were made to refund millions to people who were wrongly charged fees for no work performed. This proposed inquiry is supposed to be looking at how a business sets its prices which has nothing to do with the ACCC. The only way that wrongdoing can be found is if there is collusion and good luck with that. The ACCC has been trying to pin oil companies with a charge of collusion for years with no result. Merely another political stunt.

This is an inquiry motivated by political reasons rather than concen for the financial health of Australians or the Australian economy. If the current crop of politicians on the government benches had any economic acumen at all they would already know the answer.

Banks, and indeed any business for that matter, have variable costs, like the cost of borrowing money and the price of fuel for their fleet cars etc, and fixed costs, like salary and wages, rents, insurances, utilities, IT, advertising, sponsorships, dividends and taxes to name a few. Just because the Reserve Bank reduces the cash rate does not reduce these fixed costs. Therefore it stands to reason the reduction in the cost of borrowing money cannot be totally reflected in the prices (ie the interest on loans) they charge their clients. This infers it would be financially irresponsibe for the banks to pass on the full reduction in the cash rate to their clients. It could well be that this inquiry could backfire on the government, and certain loudmouth financial gurus, if/when the banks justify their decisions and the inquiry upholds them.

PS. I do not have a mortgage nor do I own any shares in banks (or any othet business). I do have a bank account paying minimal interest.

Perhaps it will educate the public that the mortgage lending rates have nothing to do with the interbank rate set by the RBA. 

If the full amount was "passed on" to mortgagees, is he also advocating that the full amount always be passed on to depositors (the other side of the same coin)? If so, then ordinary depositors would now be paying the banks to store their money.

Governments telling businesses how to run their business is not a smart thing to be doing.

They investigate banks over the setting of interest rates, the LNP Government should also be investigated for the way that Deeming Rates are set on Cash Term Deposits.

Deeming Rates on cash Term Deposits is a PENSIONERS TAX!

I am absolutely certain that the Government creating public focus on the Banks applicttion of interest rates  and  ACCC action, is a,not even thinly disguised, endeavour to ensure  that public focus is not the on Government financial mangement performance. The Government is just fixing public examination on someone else, rather than themselves and their own performance..

Another Ray?  Come stai?

Quote the last para. 'Do you think this investigation will finally lead to banks changing their processes, or will we still get more of the same?'.

Best thing would be 'Do you think this investigation will finally lead to GOVERNMENT changing their processes, or will we still get more of the same?'. 


First of all banks were deregulated since the 1980s as a result of the recommendations contained in the Final Report of the Campbell Committee of Inquiry into the Australian Financial System. I believe the thinking behind this was that the sector remains “dynamic and competitive.”  

Where to go from here, return to regulation? Follow China’s footsteps? Too late, even the Chinese banking system is undergoing a program of reform, to transition from state to private ownership and support the economy's move to capitalism. Yep capitalism. I don’t have a mortgage myself but I feel for those who are faced with high costs. Unfortunately the banks have to balance the needs of borrowers, savers and shareholders and since they are private, I believe there is very little that can be done. Looks like money down the drain to me!

Yes ABE, you’ve got that right. The ball is in the banks’ court. Although I too have empathy for borrowers, they have to be more canny.  Mortgage stress is a household word. The question we must ask is: are the banks to blame 100% for this? I agree there have been some shonky deals done with some bank staff encouraging borrowers to take out loans they can hardly afford, but, the final decision rests with the borrower. Many households have loans 5 or 6 times greater than their annual income. This shouldn’t be happening in the first place. Too many new buyers want the millionaire lifestyle on a budget. Not wise. Start small, think big and grow.

8 comments