AFG supports CBA's decision
Broker aggregator AFG is applauding a decision made by the Commonwealth Bank of Australia to cancel cashback offers.
In an announcement on Tuesday, Australia’s largest bank confirmed that effective June 1, it would no longer offer cashback payments on new applications for home loan products.
Interest rate rises hitting borrowers’ back pockets have spurred a higher level of refinancing, increasing competition among lenders.
Cashback offers as high as $10,000 have increasingly been used by lenders to attract new customers. This has prompted concerns from the mortgage and finance industry that the lure of a lump sum of cash may influence customers to make decisions not in their best interests, while also triggering a clawback for the mortgage broker where a loan is refinanced within two years.
A CBA spokesperson told MPA that the bank’s decision to remove cashbacks was in response to “customer, broker and lender feedback” and that in the current economic environment, customers were focused on “value, simplicity and certainty”.
AFG head of sales and distribution Chris Slater (pictured above) applauded CBA’s decision, saying that cashbacks create sub-optimal outcomes for some customers and promote unfair competition.
“We have been saying for some time that cashbacks are a loyalty tax on existing customers who are cross-subsidising these cash incentives,” Slater said. “The big four [banks] have been using cashback offers to squeeze out non-major lenders by writing products that are sub-economic.”
A competitive advantage arising from lower capital costs, a rating uplift on the back of the implicit government guarantee, and a strong flow of deposits support the “questionable loan economics” of a cashback, he said.
“Competition has been eroded by these structural advantages,” Slater said.
The broking channel has the best interests of customers legislated, and as such, will undertake Best Interests Duty (BID) to determine the option/s best suited to the customer.
“A customer refinancing to take advantage of these products will receive a short-term cash injection but it may cost more in the long term,” Slater said. “If a customer is looking to take up a cashback offer, they absolutely need to speak with a broker to establish the facts before making the move.”
CBA, which announced a quarterly profit of $2.6bn for the third quarter of FY23, said that it continued to offer customers “a wide range of flexible home loans with competitive rates”.
