ASIC: Banks are ripping off customers with offset accounts that don’t offset
Key takeaways
- A new ASIC report found that many Australian borrowers are paying far more interest than they should be.
- This is because many major Australian banks are failing to properly link offset accounts to borrowers' home loans.
- What's next: Check your home loan app or a recent statement and make sure your lender is offsetting your loan principal correctly.
Australian banks are taking customer deposits in offset accounts and failing to properly offset the loan principal, in effect overcharging customers.
That's according to a new investigation by the Australian Securities and Investments Commission (ASIC).
The regulator investigated eight banks "representing more than 70% of the Australian home loan market" and found many cases where the banks failed to properly treat customer offset accounts as offset accounts.
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Failures include:
- Not identifying when customers were requesting an offset account.
- Failing to link customer offset accounts to their home loans.
- Failing to compensate customers when there was an issue with an offset account.
- Not making information about customers' offset accounts clearly visible in a banking app.
These are serious failures. Australians have almost $350 billion saved in home loan offset accounts.
What is an offset account?
Offset accounts are savings accounts attached to some home loans. Instead of earning interest, the money you save offsets your loan principal, meaning you get charged less interest and therefore repay your loan faster.If you had $350,000 left on your loan (the principal) and $50,000 in your offset, your lender should only be charging you interest on $300,000.
Banks paid over $55 million in compensation to customers related to offset account failures during the report's two-year review period.
ASIC found one bank alone had identified hundreds of cases where it failed to create or link a customer's offset account properly.
What should borrowers with offset accounts do now?
ASIC's report is a great reminder to never trust your bank without verifying. In this case, you can check your lender's mobile app or log in to view a recent statement.
You should quickly be able to see:
- How much money is in your offset account.
- How much interest you're saving via the offset.
If you can't figure this out, or you're unsure if the offset account is working, call your lender and ask for a clear explanation.
And if you're still not satisfied, or your lender hasn't linked your offset account correctly, you could consider:
- Making a complaint. By law, banks must have an internal dispute resolution process to handle your complaint. And if this doesn't work, you can then complain to the Australian Financial Complaints Authority (AFCA).
- Switching to a new lender. You can always refinance your home loan with a new lender. This can get you a better deal, a home loan cashback and hopefully an offset account that works (but check this carefully once you get your new loan approved).
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