01.Plain English and full disclosure on financial products
As of January 2012, mortgage providers will have to hand over a key
to prospective clients that clearly outlines the financial details and long-term consequences of the loan.
For consumers who don’t have the time or expertise to sort through the fine print, one of the biggest financial decisions they have to make will be that much better informed.
A step in the right direction
The fight for plain English and full disclosure on financial products has been a big part of our Better Banking campaign, and it’s far from over. But there have been some wins. One of the most recent is a step toward clarity for those who want to buy a home but don’t speak the same language as the financial services industry.
Under the new rules, a standardised one-page summary will spell out the term of the loan, the frequency of repayments, the interest rate, and the total amount that will be paid out if the loan goes to term, including all fees. Consumers will be able to tell at a glance, for instance, that their $300,000, 30-year loan at 7.16% will cost them $742, 019, or $2.43 for every dollar borrowed once you factor in fees.
The form will also have to make clear whether the loan will be based on a variable rate and include an estimate on increased costs in the case of a 1% rate rise.
The government’s take
Assistant Treasurer and Minister for Financial Services, Bill Shorten, told CHOICE the initiative will have widespread benefits: “If we make banking more straightforward for people, by giving them simple and easy-to-understand information, we give bank customers the tools to work out what's going on for themselves. Smart people will make smart decisions in their own self-interest, which is good for them and the community.”
But not everyone thinks the government is making things clearer. Australian Bankers Association chief executive, Steven Münchenberg, told us home loan calculators on banks’ websites can give people a better idea of what they’re signing up for than the standardised form.
“Competition for home loans is already fierce in the financial services marketplace. The jury is out as to whether this fact sheet will increase competition and simplify comparisons or will simply confuse customers,” says Mr Münchenberg.
Mortgage & Finance Association of Australia (MFAA) CEO, Phil Naylor, said the main responsibility to provide key fact sheets “is with the lender, as the sheets describe the products they provide”.
Nevertheless, Naylor supports the idea on the grounds that, for the brokers who make up most of MFAA’s membership, it will serve “as a means of better informing consumers as to the products available and their appropriateness to the consumer's circumstances”.
According to the Australian Bureau of Statistics, housing loans as of September 2011 stood at $14,644 billion. The average was $284,400.
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