ACCC mortgage inquiry shielded APRA

George Lekakis Finance regulation

There’s at least one gaping question that the ACCC carefully sidestepped during its 18-month inquiry into residential mortgage pricing in Australia.

While one of the competition watchdog’s key findings was that the four major banks exploited APRA’s move in 2017 to cap growth in new interest-only lending, the ACCC failed to ask why the prudential regulator did not take precautionary measures to ensure that existing home borrowers were protected from unnecessary rate hikes.

The question should have been addressed in the final report of the ACCC inquiry given that the 30 basis point rate increases are now baked into the expense columns of thousands of household budgets.

Even though the ACCC found that those rate increases added A$1.1 billion to interest revenue collected from gouged borrowers last year, it offered no recommendations to government on how the repricing could be remedied or prevented from happening again.

The bottom line is that the ACCC dropped the ball.

It simply did not want to probe the failings of another regulator in an environment where public confidence in financial supervision is withering on the vine.

Nowhere in the final report is there an indication that the ACCC interviewed APRA officials to assess whether the prudential regulator was asleep at the wheel or in fact gave tacit approval for the major banks to hit existing interest-only borrowers with the rate increases.

Apart from boosting profitability of the big banks, the Productivity Commission also found that those “avoidable” rate hikes were subsidised by Australian taxpayers.

The PC estimates that the rate increases induced $500 million worth of tax breaks for interest-only borrowers.

Such distorted transfers of value in the mortgage supply chain warranted a much deeper investigation by the ACCC.

Its findings on the controversial repricing of interest-only back books merely repeat what the Productivity Commission has already observed but with less vigour.