Tens of thousands of Australian homeowners have been identified as being affected by mortgage offset account failures, with banks repaying more than $55 million in extra interest charged to customers.
A review by the Australian Securities and Investments Commission (ASIC) found some of the country’s largest lenders had failed to properly set up, maintain or reconnect offset accounts, leaving borrowers paying more interest than they should have.
The regulator reviewed eight banks, which collectively account for more than 70 per cent of Australia’s home loan market, and warned the true impact could be higher because some lenders could not determine how many customers had been affected.
Mortgage offset accounts are linked to home loans and reduce the amount of debt on which interest is calculated.
For example, a borrower with a $500,000 mortgage and $20,000 in an offset account would only be charged interest on $480,000.
However, ASIC found some customers continued making repayments while their offset accounts were not working correctly.
ASIC chair Sarah Court said customers had been “doubly hit”.
“They are not only losing promised interest savings but also the opportunity to use that money elsewhere,” she said.
The review found problems including incorrect data entry, missed tasks and failures to reconnect offset accounts after refinancing or switching loan products.
In one case, a borrower was charged more than $3500 in extra interest in just over a month after a bank error disconnected their offset account from their mortgage.
Two other customers each paid more than $17,000 in extra interest after their banks failed to tell brokers that their offsets needed to be relinked following refinancing.
ASIC said some banks had been slow to identify and fix issues, with one lender failing to begin identifying affected customers until after the regulator became involved.
Court said banks needed to do more to ensure customers were not left to discover problems themselves.
“Customers should not have to discover their offset account has not been working as promised,” she said.
“When offset accounts don’t operate correctly, the harm can be hidden.”
The Australian Banking Association said offset accounts continued to work correctly in the overwhelming majority of cases.
“Offset accounts can be an effective way for mortgage holders to save on interest and in more than 99 per cent of cases banks were found to manage them correctly,” chief executive Simon Birmingham said.
“As the report states, banks have already taken action to compensate the small number of customers where those banks identified errors, often manual errors.”
ASIC said it would continue monitoring banks and expected lenders to identify any remaining failures and compensate affected borrowers.
Borrowers with offset accounts are encouraged to check their banking app or contact their lender to confirm the account is linked correctly, particularly after refinancing or changing loan products.
