Jan 142008

Wayne Swan seems to have been brought up-to-date on some of the realities which confront Mr & Mrs Average Home-Owner.

Last week, Swan criticised the banking sector for wanting to protect shareholder profit margins by recovering lending losses incurred in late 2007. He urged average home loan borrowers to “vote with their feet” if they thought they were being ripped off by their home loan lender. Well, Wayne, I don’t know of a single home loan borrower who doesn’t think they’re being ripped off. Dissatisfaction is a matter of quality rather than quantity. Like riding in a crowded commuter train, the experience is distasteful, but tolerable as long as you’re not sitting or standing next to someone who reeks of body odour. So it is with home loans. A necessary experience if one wishes to own a home. Tolerable, as long as the on-costs aren’t overly burdensome.
The voting-with-your-feet part just isn’t an option any longer and it’s here that you begin to realise the commuter alongside of you really hasn’t bathed in a long while. The was a time, and not long ago either, where the counter to taking the risk of a variable rate home loan, as opposed to a fixed rate loan, was the ability to hop in & out of funders as the mood took the borrower. Competition did exist on one level, that of variable rate lending. Fixed rate lending is funded entirely differently from variable lending, and so the institution of ‘break costs’ – the recovery of predetermined interest earnings paid up-front by the borrowing institution in order to on-lend to it’s clients – is quite fair and reasonable in the majority. However, not being able to adequately control your variable rate loan book over the past decade’s all-time lowest home loan rate rates clearly impacted on market share of the banks. How to solve that problem? Why, simply charge people a penalty for taking their business elsewhere. Fine, if only one or two funders do it, but every single funder has jumped onto the bandwagon, effectively locking a customer into a lender for a given period of time, making refinancing their debt to potential competitor highly unpalatable, if not prohibitively expensive. Say goodnight to competition, Gracie! Solution? Outlaw such behaviour.
This is one of the options Swan will look at when attempting to shield voters from the evil, wicked, mean and nasty financial institutions in Australia. Frankly, I think it’s a fair and reasonable option to exercise. How the government intends to go about instigating an abolition on refinancing penalties without infringing on existing loan contracts and the rights of private enterprise to conduct independant business practices remains to be seen. The big question which comes to mind though, if this issue of refinance penalties is to be put forward as a barrier to competition between financial institutions, why hasn’t it been identified before now? Isn’t this what the Australian Competition and Consumer Commission was created for? To look out for and protect the rights of consumers?
A quick review of the ACCC site reveals – in relation to Bank Fees, the following:

Bank fees
While the ACCC cannot set or regulate interest rates or fees charged by these institutions, it does maintain an informal oversight of bank fees and charges. See Related topics box.

The related topics box refers you to an information section describing the various ways and means credit card providers have of dipping into your pocket, whilst repeating the above disclaimer. In other words, the ACCC is once again proven to be a toothless tiger, completely and utterly devoid of any ability to do anything on the consumers behalf.
So, what does Wayne Swan hope to achieve here? Completely expose the ACCC for the waste of taxpayer funds it most certainly is, by legislating around the body to outlaw refinance fees as anti-competitive behaviour, or grant the ACCC the power to investigate, make recommendation and proceed to governmental report recommending the exact same action? With the former, Graeme Samuel and the body he heads will be seen for the vacant space both clearly are. With the latter approach, Samuel keeps his job, an inquiry will be instigated and some sort of remedial action might be achieved in four or five years. ACCC get’s to look like it’s doing something and so does the government. Interesting times ahead. I can hardly wait.