In a congested segment attracting private investment, some of it kind of daft, the ACCC will soon be doing its bit to inspire comparison websites to focus on quality, at least around financial products.
“An online tool to improve the transparency of the mortgage interest rates paid on new loans” is in the works, The Council of Financial Regulators said yesterday, in a quarterly update on its work.
This follows a recommendation of the Productivity Commission’s inquiry into Competition in the Australian Financial System, released in August last year.
The tool “relies on a new data collection” and is expected to be available in 2020.
This tool will be producing an “indicator rate” that will unsettle brokers and banks as well as the half dozen big names in financial comparison.
Thus it will soon be curtains for the “comparison rate”, a staple of credit product promotion since Andrew Willink, founder of Cannex, persuaded the industry and government his formula would solve a market failure of the day.
The output of what the PC also styled as a “calculator” looks likely to be a wholesale product that the comparison website sector will both white-label and repurpose.
If this calculator follows the PC vision it will be “a calculator based on actual interest rates charged.
“The online calculator can draw on the vast amounts of data collected by lenders, to provide a timely and customised estimate of home loan interest rates based on actual price data,” the commission suggested in its final report.
The parameters of the final version of the ACCC purifier aren’t known, though the ACCC’s own report on its Residential Mortgage Price Inquiry (from December 2018) has clues.
“It is not informative for borrowers to compare headline interest rates when shopping around for a lender,” the ACCC wrote in their report.
Headline interest rates the ACCC deemed “a poor guide to the interest rate most borrowers actually paid” while the typical borrower among those big banks studied “were, on average, paying interest rates well below the relevant headline interest rate during the price monitoring period.”
And: “The framing of mortgage interest rates – as an alleged ‘discount’ - in this way exploits consumers’ bias.”