MEBank has apologised to customers and said that it is working to reimburse around 2,500 mortgagors affected by a “system error” that led to some borrowers being charged a higher interest rate without adequate notice.
On 17 April 2018, Members Equity Bank (ME) announced that it would be increasing its variable home loan interest rates.
Under the changes, ME’s standard variable rate for existing owner-occupier principal and interest (P&I) borrowers with an loan-to-value ratio (LVR) of 80 per cent or less increased by 6 basis points to 5.09 per cent p.a. (comparison rate of 5.11 per cent p.a.).
Variable rates for existing investor principal and interest borrowers increased by 11 basis points, while rates for existing interest-only borrowers increased by 16 basis points.
According to ME CEO Jamie McPhee, the changes were brought in as a result of increasing funding and compliance costs.
Speaking last month, Mr McPhee said: “Funding costs have been steadily increasing over the last few months primarily due to rising US interest rates that have flowed through to higher short-term interest rates in Australia.
“In addition, ME continues to transition its funding mix to ensure the requirements of the Net Stable Funding Ratio will be met, and this is also increasing our funding costs.
“At the same time, industry reforms and increasing regulatory obligations are increasing our compliance costs.”
He continued: “This was not an easy decision, but rising costs have forced us to reset prices to maintain a balance between borrowers, depositors and our industry super fund shareholders and their members, all while ensuring we continue to grow and provide a genuine long-term banking alternative.
“We will continue to assess market conditions and make changes to prices to maintain this balance if necessary.”
While the bank did publicise the rate change two days before it was due to take effect, usual practice is for a mortgagor to be notified 20 days in advance of an interest rate change.
According to the bank, however, a “system error” led to customers being charged the new rates on 19 April without the adequate time warning.
A ME spokesperson said that the “proper process” is for ME to write to customers to notify them their repayments are going up “but not to increase their repayments until at least 20 days after they get that notification”.
“Unfortunately on this occasion, due to a system error, we increased the home loan repayments immediately for about 2,500 owner-occupier and investor customers — about 1 per cent of our home loan accounts.”
The bank reportedly detected the “error” the following day (20 April) and “immediately intervened to ensure no additional customers were affected”, the spokesperson said.
“We are now working on reimbursing and communicating with those impacted customers as a matter of urgency. We are clearly very sorry for the error and the impact it has had on customers,” the CEO said.
The way banks have been disclosing interest rate changes and remediating customers for bank errors has been thrown into the spotlight recently, thanks to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
