Interview with Michael McLaren on 2GB Afternoons

‍Subjects: Senate inquiry into bank mortgage offset accounts

E&OE....

Michael McLaren

Well, look, you might have missed the news earlier in the week, but I do think this one is actually worth looking into because it probably affects a stack of people listening right now. On Tuesday, the Senate voted to establish a new inquiry. This was into bank mortgage offset accounts, and they're looking into whether you and me, Australians, are actually being ripped off.

Now, look, millions of Australians use offset accounts. I've got some, and the sales pitch is they reduce the interest cost on your mortgage. But there are some concerns that the banks aren't really delivering on that promise. In fact, back in July, ASIC found that Australian banks paid more than $55 million in compensation to customers in just two years for failures with mortgage offset accounts. The failures basically left customers paying more interest than they should have. And it's difficult—so many things in life, you're not going to be looking at all of this with the finest of detail, you just sort of trust the bank is delivering on the numbers the way that you would expect them to.

Well, as the ABC reported at the time, ASIC examined eight banks representing more than 70% of Australia's home loan market. They found weaknesses across all of them in how offset accounts were set up, monitored, and managed. But, as you can imagine, since then nothing's really been done by the government to address it. So Senator Andrew Bragg, the Shadow Minister for Housing and Homelessness, wanted to get further into this. He's across the detail and the inquiry, he's on the line. Always good to speak, Andrew.

Senator Bragg

G'day, Michael.

Michael McLaren

Okay, look, as I said, I've got offset accounts, you might, millions do. And I guess we just sort of trust that it's lowering our interest repayments and helping us get a little ahead on the mortgage curve, so on and so forth. But a bit out of sight, out of mind, we have form here where the banks haven't done the right thing.

Senator Bragg

Well, the Senate has wisely commissioned an inquiry into this, as you say, because too many Australians have lost, in some cases, hundreds of thousands of dollars over the course of their loan because their bank hasn't linked their offset account to their mortgage. So what's happened is people have asked the bank to do that, they haven't done it, and so therefore they are in a terrible position because all those years of having that money sitting in an account hasn't actually reduced their interest.

Michael McLaren

Okay. Now you would think with all of the oversight—we've got ASIC, we've got APRA, we've got Parliamentary inquiries, Senate inquiries, we've got a gazillion layers of oversight on the banks, and the housing market is pretty much the biggest market in the country, so there would be a lot of oversight there for obvious reasons. And yet this seemed to go on 70% of the market was surveyed, a stack of shortcomings, $55 million in compensation in just two years. I guess with all of those eyes on the game, how was this missed for so long?

Senator Bragg

Well, ASIC did a report on it, but they didn't say which banks had performed badly. They didn't really show the case studies, and so I think it's important that we have transparency and that people can see which banks have really applied themselves poorly here. Because the banks have so much power in our society that it's really important that they do the right thing and their systems have to work. And that's why in this inquiry we want to hear from the top brass, because it's not good enough that so many people have been done over.

Michael McLaren

Well, that's right. And of course banks in a way are sort of a protected species. It's not like anyone can just start a bank. You've got to have government permission, and so it's a controlled market to a degree. There's an extra onus there, isn't there, that if you were given an element of privilege—it's not like you're selling biscuits up against anyone who can bake a biscuit—that you adhere to the rules of the game.

Senator Bragg

Well, they've got a deposit guarantee, they've got the four pillars policy, they've got a heap of protection, they make billions of dollars each year. And if the little people are being done over and haven't been properly recompensed or fixed up, then we will hit them like a ton of bricks.

Michael McLaren

Okay, so ASIC haven't said which banks, although with 70% of the mortgage market, some of the big ones have to be in that net obviously. You're going to have the Senate inquiry. Does that mean that the CEOs of the banks get called, and if so, how do you know which ones to call?

Senator Bragg

Well, they will be called because those are the biggest four institutions, and we will get into the detail of what actually happened here. Because it's just not good enough for ASIC to be not saying which banks have done the wrong thing. I mean, I can't think of any other example where a regulator gives the banks effectively witness protection. I just don't think it's good enough.

Michael McLaren

Have ASIC given a reason as to why they don't want to disclose these details?

Senator Bragg

Well, they say that they're working through various models for remediation. But I've already had people reach out to my office directly in the last day or so saying that they've been stuck in a quagmire with AFCA, the complaints authority. They have been fighting over getting compensation for their failure to have their offset linked to their mortgage for many years. So we need to bust this open and get to the bottom of it.

Michael McLaren

Okay. Now, with the Senate inquiry, often you also like to hear from the public to build up a body of evidence.

Senator Bragg

That’s right.

Michael McLaren

If people think or they've got evidence that their offset accounts have not been linked to their mortgage despite the fact that that's what they requested, should they be in touch?

Senator Bragg

They should drop me a line at senator.bragg@aph.gov.au—which stands for Australian Parliament House—or they'll be able to send a submission into the Senate next week.

Michael McLaren

Bragg with two Gs, by the way: senator.bragg@aph.gov.au, was it?

Senator Bragg

Yes, so get in touch directly. We're keen to hear from people. We want to make sure that these big guys do the right thing.

Michael McLaren

I assume none of this is to suggest that we shouldn't have offset accounts or anything like that. It's simply that they should work as is sold on the tin, right?

Senator Bragg

I mean, in the age of artificial intelligence, you'd reckon that these banks would be able to link the right accounts to the mortgages. It just seems ridiculous this has happened on a systemic basis. So there's nothing wrong with offset accounts, they're actually a very good idea, very good idea. They reduce the cost of the mortgage by reducing the amount of interest you have to pay.

Michael McLaren

As long as it's applied appropriately.

Senator Bragg

That’s right.

Michael McLaren

Otherwise you've got a lot of money sitting over here earning no interest, but also not offsetting your account.

Senator Bragg

So look, we'll get to the bottom of this. My sense is—I don't want to preempt the inquiry's final findings—but I imagine we will not find that the laws were deficient, but that we will find that the banks were deficient and the regulator was deficient. But let's see how we go.

Michael McLaren

I was going to say, because one of the aspects of all of this, as you've said in your press release, you want to examine how mortgage offset accounts are established—okay, that's pretty straightforward—linked—obviously that's not always happening—managed—okay, issue—but then monitored. And so this isn't just about the banks, it's about the oversight bodies as well, isn't it?

Senator Bragg

Well, it is, but I mean the banks should just have systems where if people have a large savings amount in a bank account that they should just be checking that that's linked to a person's mortgage, if that's what that person wants. It just seems incredible that you could have a systems failure of this magnitude, as I say, in the age of artificial intelligence. Just doesn't make any sense to me.

Michael McLaren

Yeah, just finally, how much of this do you reckon happens because, by and large, few people now have personal interaction with a bank manager? It's all online and there's reasons for that, and we're not going to turn back the tide and have a bank branch on every corner with 25 staff anymore and tellers in it. But when you remove that interpersonal relationship, it does remove an element of the oversight or little things being picked up, does it not?

Senator Bragg

It's hard to say, Michael. It's a good point, but I also think that computer systems, if they're working properly, can actually be more of a fail-safe option, because you're not relying on human error. So I'm not sure that's necessarily the case, but we will definitely dig into the systems and work out what the hell happened here. And I think it's important that these things are known transparently, because that's the job of these Senate committees, to get to the bottom of things and to make proper recommendations so that they don't happen again.

Michael McLaren

Okay, when does it all get underway, the inquiry?

Senator Bragg

Look, we'll start taking submissions next week, and then we'll do public hearings later this year, and then there'll be a report next year.

Michael McLaren

All right, well, keep us up to date. Always good to speak, thank you, Andrew.

Senator Bragg

Thanks, Michael. Thanks a lot.

Michael McLaren

Senator Bragg, Liberal Senator for New South Wales.

[Ends]

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