Wait, the bank can do that!?
Every now and then a bank does something that bucks the trend and takes customers by surprise. Today we’ll look at two cases that recently made national headlines and how you can reduce your chances of getting caught out.
While the below two examples may not relate to your home loan specifically, they do serve as important lessons nonetheless.
Why? Because there’s every chance banks will make other changes to loan products in the months ahead as COVID-19 continues to put pressure on the economy.
The first example we’ll discuss today is ME Bank’s decision to reduce limits on its customers’ redraw accounts without giving any prior warning.
The move came as a complete shock to customers, with many publicly expressing their anger at no longer having access to thousands of dollars needed to help them get through difficulties they were facing due to COVID-19.
While ME Bank says it stands by the decision, it admits it messed up and didn’t do the right thing by its customers in terms of communicating the move.
“The job we did to explain a complex product, what we were doing and why we were doing it, was simply not good enough,” ME Bank said in a statement.
“Please accept our most heartfelt apology.”
The financial regulator APRA has since gotten in touch with ME Bank to request a “please explain”, as have the trustees and chief executives of major super funds that are ME Bank’s shareholders.
So, what’s the take-out?
Well, redraw accounts certainly have their benefits.
But like most products, they can come with certain terms and conditions that can catch you out, such as the example highlighted above.
So when you’re deciding on a home loan product for you and your family, we can inform you of any catches buried deep within the T&Cs that you should be mindful of.
CBA automatically reduces monthly repayments
The other big move made by a lender this month is Commonwealth Bank automatically reducing repayments for 730,000 of its customers to the minimum required under each loan contract.
The bank recently sent an email advising its customers of the change, saying customers must opt-out if they wanted to continue to make repayments above the minimum amount.
This goes against the grain of what usually happens, which is where the onus is on the customer to contact the bank and ask for their monthly payments to be reduced when interest rates fall.
Now, on the face of it, it kinda looks like good news, right?
After all, CBA says the move will release an average of $400 a month for customers and inject up to $3.6 billion cash into the economy over a 12-month period.
But as ANZ CEO Shayne Elliott pointed out in November, he strongly believes in not automatically reducing the repayment amount because it allows customers to repay their debt sooner, and pay less interest over the life of the loan.
“It’s the responsible thing to do, as a bank. It’s in [customers’] best interest in the long term to repay their debt,” he says.
Put yourself first
CBA and ME Bank justified their moves by saying they were implemented to “help” and “protect” customers.
But the best way to truly help and protect yourself is by being proactive and informed – not relying on the banks to roll out one-size-fits-all policies they say are in your best interests.
For families doing it tough right now, CBA’s decision to automatically reduce payments will come as a welcome relief.
But if you were meeting your monthly repayments fine until now and would like them to stay as they were, then it’s important to let CBA know so you don’t pay more interest on your loan over the long run.
If you’d like a hand reviewing your loan and exploring your options in light of COVID-19, please don’t hesitate to get in touch – we’re always here to help when you need us.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.