Australian banks have overcharged mortgage holders $55 million in extra interest due to faulty offset accounts, according to a new report from the Australian Securities and Investment Commission (Asic). The regulator warned that the figure is expected to climb as remediation efforts continue.
Offset Account Failures Lead to Hidden Costs
Asic's review of more than 200,000 home loans from eight banks uncovered poor practices, including cases where offset accounts were accidentally unlinked during mortgage changes. In one instance, a customer paid over $3,500 in additional interest in a single month due to an unlinked offset account. The error went undetected until the customer noticed higher repayments and complained.
Offset accounts allow borrowers to reduce interest by offsetting savings against the loan balance. For example, a borrower with a $100,000 loan and $20,000 in a linked offset account pays interest on only $80,000. The amount Australians hold in these accounts has surged to nearly $350 billion.
Asic Criticizes Banks for Failing to Get Basics Right
Asic chair Sarah Court stated, "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." She added that this represents a double blow, as customers lose both promised interest savings and the opportunity to use that money elsewhere.
Some banks could not readily identify whether a customer had requested an offset account, suggesting the problem may be more widespread. Asic also found that banks were slow to fix issues and failed to compensate customers promptly. "In some cases, offset failures went undetected until Asic started asking questions. That should concern every bank offering offset accounts," Court said.
Industry Response and Consumer Concerns
Simon Birmingham, CEO of the Australian Banking Association, noted that "in more than 99% of cases banks were found to manage them correctly." He added that banks have already taken action to compensate the small number of customers affected by errors, often manual ones.
Meg Dalling, assistant director at the Consumer Action Law Centre, said, "People sign up for mortgage offset accounts with the promise of substantial interest savings – banks must deliver on these promises." She emphasized that the failures mean it takes longer to pay off loans. "This is unacceptable in a cost-of-living crisis – the community expects better from their bank."
Sally Tindall, director of data insights at Canstar, expressed alarm at the findings. "It is disappointing. People with a mortgage are focused on making their monthly repayment and keeping their heads above water. They don't have time to be double-checking their bank, and nor should they."
