Crackdown on interest-only lending: ASIC

Eight banks to offer struggling homeowners remedies.

The corporate regulator is coming down on banks for selling interest-only home loans to unsuitable consumers just because they are more expensive.

Eight banks will have to compensate their customers for inadequate lending practices, including major institutions Commonwealth Bank, ANZ and NAB, following a crackdown on lending practices by the Australian Securities and Investments Commission (ASIC).

Customers struggling to make mortgage repayments will have their cases reviewed and, if it is found they've been inappropriately sold an interest-only loan, will be offered 'tailored' remediation. This could include a refund of fees or interest.

It makes less sense for the "vast majority" of owner-occupiers to buy more expensive interest-only loans, says Peter Kell, deputy chair of ASIC.

"Lenders and mortgage brokers must ensure consumers are being provided with the home loan product that meets their needs. [They] need to think twice before recommending a consumer obtain a more expensive interest-only loan".

Lenders weren't adequately assessing people's cost of living expenses, a 2015 review found. ASIC claims the eight lenders examined have since improved their practices by asking specific questions about people's expenses, including food, transport, insurance and entertainment costs.

"Home loans are the biggest financial commitment most people will ever make," says Kell. "It is important lenders can collect and rely on information which provides an accurate view of the consumer's financial situation."

The news comes after the Australian Prudential Regulation Authority (APRA) announced a drop in the cap of new interest-only loans. They are to make up 30% of all residential mortgages issued, down from 40%.

ASIC advises customers struggling to make repayments to contact their lenders first; however, the regulator says free third-party dispute resolution is available, through either the Financial Ombudsman Service (FOS) or Credit and Investments Ombudsman (CIO).

The eight lenders reviewing the interest-only cases of struggling homeowners are:

  • Australia and New Zealand Banking Group Limited (ANZ)
  • Bendigo and Adelaide Bank Limited
  • Commonwealth Bank of Australia
  • Firstmac Limited
  • ING Bank (Australia) Limited
  • Macquarie Bank Limited
  • National Australia Bank Limited
  • Pepper Group Limited