Industry reacts to discharge reforms

The federal government’s decision to make it easier to switch loans by giving customers “direct and easy access” to discharge forms has been largely welcomed by the mortgage and finance industry but there are concerns the changes don’t go far enough.

Treasurer Jim Chalmers (pictured above left) announced on June 15 a number of measures the government would be making to helps Australians get a better deal on banking products, including mortgages and savings accounts.

The changes are in response to the 2020 ACCC Inquiry into Home Loan Pricing from 2020 and its 2023 Inquiry into Retail Deposits.

The Treasury’s new measures include making it easier for customers to refinance their home loan by giving them access to the forms needed to exit a mortgage, and requiring financial product comparison websites to better disclose how products are ranked and the financial relationships they have with product providers.

Other changes include asking Treasury to investigate how behavioural economics and prompts could be used in banking to encourage consumers to switch to cheaper home loans and banking products,  and requiring banks to tell customers when their interest rate changes on their transaction or savings account and improve disclosure requirements for basic deposit products.

MFAA CEO Anja Pannek (pictured above second from left) said while the MFAA was pleased to see the government taking action to improve transparency in financial products and make it easier for consumers to switch home loan providers, it believed these changes should go further.

“The move to require lenders to make home loan discharge forms easy to access is a positive step,” Pannek said.

“However, lenders are, in many cases, not allowing mortgage brokers to act on their client’s behalf in the loan discharge process, even when the client has given their consent. There is no reason a mortgage broker shouldn’t be able to manage the loan discharge process on behalf of their client when the client gives consent.”

Pannek said that could be as simple as “creating space on the loan discharge form for a customer to provide consent for their broker to act on their behalf”.

“Certainly, we have been advocating since the Home Loan Price Inquiry, that these forms should be consistent across lenders, and the discharge process should be completed in a maximum of 10 days once a completed form is received so borrowers are not paying more due to unnecessary delays.

The MFAA’s advocacy was about removing friction in the loan discharge process, Pannek said.

“In addition to discharge forms that are hard to find and difficult to complete, lenders are making it hard for borrowers to switch in other ways that need to change.

“Lenders are not putting their best foot forward when existing customers, and their brokers, ask about repricing, coming in with last-minute offers after a mortgage broker has done the work to find a better loan for their client.

“This makes the process more confusing for borrowers, and in the midst of a cost-of-living crisis it is only right that it becomes easier for them to refinance their home loans, not harder.”

Pannek said the MFAA had been working closely with Treasury on the federal government’s response to the Home Loan Price Inquiry recommendations and would continue to do so to ensure the implementation of the Treasurer’s announcement reflected the interests of MFAA members.

“Indeed, our recent whitepaper improving home loan discharge process has kept the issue at the forefront.”

“Equally, we believe prompts can be used as a good way to encourage borrowers to consider their options. Our members already prompt their clients, so if prompts are instituted, they must ensure borrowers understand they can access the services of a mortgage broker to help them.”

FBAA managing director Peter White (pictured above far right) said the FBAA had been lobbying Treasury and Treasurer Jim Chalmers about making the loan discharge process easier since late last year.

“One aspect was about getting common loan discharge forms and two, also to get those forms digitised rather than having to put a wet ink signature to it,” said White.

“Having a simpler, easier form process for discharging mortgages is a significant step forward. It’s a great thing for the mortgage broking sector. It will help things flow quicker.”

When it came to Treasury investigating methods for the banking sector to encourage consumers to switch to cheaper home loans,  White said there had been recent comments from the banks sector about being more transparent and he urged the banks to do so when it came to rates, fees, charges and product specs.

“Not everyone uses brokers so the banks need to be very transparent in all of their operations.”

White said the FBAA had made strong recommendations to Treasury that when it came to refinancing, lenders should only have one chance to put their best deal forward and after that “all bets are off and it’s a common playing field for everyone”

“Not being able to reprice 24 hours from settlement – Treasury are working on 10 days, we said it’s a good first step but not enough so we’re still waiting to hear where that’s landed.”

Blake Buchanan (pictured above second from right), the general manager of aggregator SFG, said good visibility and access to discharge forms was certainly an approvable step but “for most who see a broker, it is immaterial”.

“The announcement lacks depth and real assistance for borrowers who are challenged with a sophisticated lending market that already has a lot of red tape,”  Buchanan said.

“Simply, the announcement does not cover enough for it to be impactful at scale. It is disappointing that the announcement did not address discharge time frames along with discharge forms.”

Buchanan agreed that rate comparison sites and referral programs needed to be more transparent with their consumer “who could unknowingly believe that they are getting product advice and recommendations from such sites”.

“Again another important reason for consumers to speak with their broker.”

Chalmers said the government would also work with banks to help improve how customers are notified about bonus interest rate offers and when an introductory lower interest rate period ends, including through the potential development of industry standards.

He said the changes would help customers get a better deal, including through more choice, lower prices and better services. “They will help create a more dynamic, diverse and resilient Australian banking sector, which is good for consumers, good for industry and good for the economy.”

Smaller banks in spotlight

Chalmers also announced that the government would set up a review into the challenges faced by small and medium sized banks led by the Council of Financial Regulators (CFR) in consultation with the ACCC.

The review will focus on the role small and medium sized banks play in providing competition in the sector and the regulatory and market trends affecting them.

Chalmers said the review would propose ways to improve regulation and ensure that oversight of these banks appropriately balanced competition, innovation, and stability.

“The review will also assess how smaller banks source funding, including the role of covered bonds, and consider whether regulatory arrangements for new entrants can support additional competition in the sector.

Chalmers said the review followed a year‑long inquiry chaired by colleague Daniel Mulino, who handed down its final report in March this year after wide ranging consultation across Australia with industry, communities, academia, consumer groups and more.

What else should the government do to streamline the loan discharge process? Comment below.