ME to front economics committee today over redraw debacle

author-avatar By on June 03, 2020
ME to front economics committee today over redraw debacle

Parliament house, Canberra. Photo by Michael on Unsplash.

The House of Representatives Standing Committee on Economics will hear from ME Bank via videoconference today, as a part of an ongoing review into major banks and financial institutions.

ME will be joined by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) at an "urgent public hearing". 

ME's appearance is in response to some discrepancies found in chief executive James McPhee's responses given to ASIC at an earlier hearing, in regards to ME's controversial decision to reduce redraw limits on mortgages without warning (which has since been reversed). 

"We note that the statements made by Mr McPhee at the hearing did not fully reflect the extent of ME Bank's communication with ASIC on the redraw issue," ASIC chair James Shipton said in a letter to Liberal MP and chair of the House of Representatives standing committee on economics Tim Wilson. 

Yesterday, Mr Wilson said that "Australians who take out a banking product expect it to be available when they need it, not nabbed in the middle of the night without notification".

"The discrepancy between ME Bank’s evidence to the committee and advice from ASIC is deeply concerning and requires further scrutiny," Mr Wilson said. 

The hearing takes place from 12pm to 1pm today. 

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
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Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 17, 2021. View disclaimer.

What's the issue? 

In early May, ME Bank outraged customers and caught the eye of regulators when it made changes to redraw facilities without giving customers prior warning. 

The bank angered its borrowers when it drastically reduced the amount they could redraw from their home loans, meaning many lost access to thousands of dollars worth of extra repayments they'd made. 

In total, around 20,000 customers were impacted. 

In the immediate aftermath, Mr McPhee issued a statement saying the change was made to prevent customers from falling behind their original repayment schedules during the height of the COVID-19 pandemic. 

“Our assessment showed there was a group of customers who were at risk of going above their scheduled home loan balance, if they were to activate the full redraw facility,” Mr McPhee said.

“We adjusted their redraw facility to be in line with their original repayment schedule.

“In the current environment, we thought it particularly important to ensure that customers were not inadvertently at risk of not meeting their repayment commitments.”

The main issue with this was that ME Bank didn't contact customers before doing so - Financial Counselling Australia chief executive Fiona Guthrie told Savings.com.au at the time that if the bank was so concerned about customers it should’ve talked with them before making the changes.

“If ME wanted to help those customers who are experiencing financial hardship, they should have spoken with them first and asked what they could do to alleviate some of their financial stress,” Ms Guthrie said.

In 2018, the Commonwealth Bank (CBA) made changes to how minimum repayments were calculated, but actively contacted customers a month beforehand to warn them of the coming change. 

At a hearing on 14 May, Mr McPhee told the committee the bank notified ASIC of the changes and next heard from the regulator once the issue had been made public in the media - they're supposed to give customers 20 days notice, according to federal credit legislation. 

However, a letter obtained by The Age and The Sydney Morning Herald from Mr Shipton to the parliamentary inquiry shows that ME's account of its communication with ASIC is inaccurate.

More information will be revealed during the hearing at 12, webcast at aph.gov.au/live.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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