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.

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.

.@ASICMedia replied to letter re if @MEBank CEO @JamieMcPhee1’s evidence to @AboutTheHouse Eco Committee was accurate re closing redraws wout consultation. In short: no. I’ve asked Eco Secretariat to recall ME, ASIC & APRA for a hearing later this week https://t.co/etjHUheyYC

— Tim Wilson MP (@TimWilsonMP) May 31, 2020

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

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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): Credit Union Australia, 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.

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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