The Fight For Truth In Lending

Sydney Morning Herald

Wednesday August 2, 2000

Vita Palestrant

Moves to introduce a mortgage comparison rate have stalled,

and consumers are the poorer for it. Vita Palestrant reports.

The battle to get financial institutions to

reveal the true cost of their home loans through a simple comparison rate suffered

a setback last month when the Ministerial Council on Consumer Affairs failed to amend the Uniform Consumer Credit Code (UCCC) to make "truth

in lending" mandatory.

The comparison rate - or annualised average percentage rate (AAPR) - takes into account the costs of a mortgage, including the interest rate, establishment costs, and ongoing fees and charges, allowing consumers to weigh up the costs of competing home loans.

Comparison rates will make it impossible for lenders to hide the true cost behind confusing detail. However, the NSW Government has made it clear that it will go it alone if the other States and Territories fail to endorse the change. It is keen to ensure that NSW consumers get the protection long enjoyed by borrowers in the UK and US.

All States and Territories adhere to the UCCC and thus have the same consumer credit law. For the legislation to change, two-thirds of the ministerial council must agree to an amendment.

"Voting took place along party political lines," says Paul Childs, a spokesman for the NSW Department of Fair Trading. "All the ALP States supported the bill with minor adjustments, while the conservative States are not yet prepared to support it."

Competition in the mortgage market has intensified in recent years, forcing lenders to drop interest rates. But smarter marketing techniques have helped them claw back some of the lost profit through higher fees and other charges.

While a bank's advertised rate may be 5.49 per cent, the comparison rate could be as high as 6.75 per cent when the different elements are included. Honeymoon products are a case in point because, while they look attractive, in reality they could cost more than other loans on the market.

Childs says that if the ministerial council can't reach consensus by October, "NSW will do it anyway, through our own law, and it's then up to the other Labor states to decide what to do".

But the Australian Consumers' Association wants

to see all States and Territories adopt truth in lending and has slammed the delay. The ACA would like to

see truth in lending extended to other loan products.

Louise Petschler, a senior policy officer at the ACA, says that while her organisation welcomes NSW's stand the issue has dragged on for years,

with some industry players claiming truth in

lending will "confuse" consumers.

"For too long consumers have been forced to make loan choices blindfolded," she says. "We need a clear and simple indication of what you'll pay for a loan when it's advertised. That's what the comparison rate can deliver."

Mark Bouris, executive chairman of Wizard Mortgage Corporation, says the move to ensure all financial service providers publish an AAPR is necessary to protect consumers. "In order to make head or tail of which loan is best you need this yardstick," he says. "The US has used the AAPR for

10 years. If it's good enough for the biggest mortgage market in the world, it's good enough for us."

If the NSW Government introduces truth in lending, Bouris says, financial institutions will face

the dilemma of whether to have different advertising material in different parts of the country.

Already progressive elements of the industry are using the comparison rate in advertising and it is only a matter of time before it is universally adopted, he says.

TOP 5: AT CALL DEPOSITS ($20,000)
Police CU (NSW)
St George Bank
National Australia Bank
ANZ Bank
Power CU (NSW)

10.90
11.70
10.17
12.00
12.25

10.90
11.70
11.84
12.00
12.25

Name of company
Min Rate %
Max Rate %
 AMP Banking
ING Direct
JB Were Capital Markets
Arab Bank Australia
Colonial State Bank

6.44
6.43
5.88
5.69
5.43

6.26
6.25
5.75
5.55
5.30

Name of company
Effective Rate
Top Nom. interest %
Westpac
Commonwealth Securities
TD Waterhouse
Your Prosperity Share Trading
Quicken.com.au

Name of company
Westpac Broking
Internet Preferred
WebBroker - Online Trading
Share Trading
Quick.Broker

$15.95
$16.30
$20.85
$21.80
$21.89

Service Name
Commission
HomePath
Resi Home Loans
MLCompany Pty Ltd
Wizard Mortgage Corp
Better Choice Home Loans

6.90
6.90
6.91
7.05
7.10

Name of Company
Rate %
6.90
7.01
7.05
7.16
7.23

AAPR %
TOP 5: PERSONAL LOAN UNSECURED VARIABLE - $20,000
TOP 5: VARIABLE HOME LOANS
TOP 5: CHEAPEST SINGLE TRADE FOR $7,000
RANKED BY AAPR
SOURCE: CANNEX 28/7/00
SOURCE: CANNEX 28/7/00
SOURCE: CANNEX 28/7/00
SOURCE: www.yourbroker.com.au
RANKED BY MAX RATE
RANKED BY EFFECTIVE RATE

© 2000 Sydney Morning Herald

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