Banks charged mortgage holders $55m in extra interest after offset account errors, Asic finds

In one case, a bank accidentally unlinked a customer’s offset account when processing a change to their mortgage. That went undetected until the customer noticed their higher repayments and complained. Photograph: RapidEye/Getty Images View image in fullscreen In one case, a bank accidentally unlinked a customer’s offset account when processing a change to their mortgage. That went undetected until the customer noticed their higher repayments and complained. Photograph: RapidEye/Getty Images Banks charged mortgage holders $55m in extra interest after offset account errors, Asic finds Australian banks ‘not getting the basics right’, regulator says after review of more than 200,000 home loans Get our breaking news email , free app or daily news podcast Asic has accused banks of “not getting the basics right”, after the regulator found faulty mortgage offset accounts meant borrowers were being overcharged tens of millions of dollars in extra interest payments. In a new report, the Australian Securities and Investment Commission showed lenders repaid $55m to hundreds of thousands of customers over two years for offset failures, and warned this figure would climb higher as remediation continued. The amount of savings Australians hold in these popular accounts has ballooned to nearly $350bn in recent years. The money is supposed to be offset against the outstanding loan value, reducing the interest payable. A borrower with an outstanding loan of $100,000 and $20,000 in a properly linked mortgage offset account, for example, should only be paying interest on $80,000. Sign up for the Breaking News Australia email Asic’s review of more than 200,000 home loans from eight banks unearthed poor practices by lenders. In one case, a bank accidentally unlinked a customer’s offset account when processing a change to their mortgage. That went undetected until the customer noticed their higher repayments and complained. In just one month, the customer had paid more than $3,500 in additional interest “as a direct result of the offset account not being linked”, the report found. Australian lenders all have an ‘edge of cliff’ mortgage interest rate. Here’s how to push them to it and get a better deal Read more Some banks couldn’t readily identify whether the customer had even requested an offset account – a finding which suggested the problem could be even more widespread than initially thought. Sarah Court, the Asic chair, said “some banks are not getting the basics right”. “When offset accounts don’t operate correctly, the harm can be hidden. Loan repayments stay the same, while customers unknowingly pay more interest and take longer to repay their loan.” That represented a double blow to customers who lose the promised interest savings, but also the opportunity to have used that money elsewhere, Court said. Of the 204,000 home loans, Asic found issues with hundreds of mortgage offset accounts. Simon Birmingham, the CEO of the Australian Banking Association, said th