Mortgage Customers Challenge GE Money's Unfair Rates & Charges

We, the undersigned, wish to challenge GE Money's 'unconscionable interest and charges' as per the Consumer Credit Code Section 72.   Their decision to not pass on the RBA's February 09 1% rate cut has left a large number of existing mortgage holders adversely financially affected.  GE Money's interest rates have been well above the banks, which is contradictory to the loan product 'sold' to customers before and at the time of entering the loan agreement. We are seeking a review for financial 'compensation' based on the additional monies paid in interest since February 2009, along with the annulment or reduction of charges towards refinancing.  

Background

In February 2009, GE Money announced their decision to exit the mortgage market and sold their Wizard brand to Aussie Home Loans.  As part of the sale, the Commonwealth Bank Australia (CBA) acquired Wizard loans with less than 90% LVR's, but excluded low-documentation and fixed rate home loans.  At approximately the same time the Reserve Bank Australia (RBA) announced a 1% interest rate cut which was passed on by the banks, other creditors and the Wizard loans acquired by CBA.

GE Money, on the other hand, said they wouldn't be passing on the rate cut to remaining mortgage holders, nor be allowing them to fix their home loan rates.  But under the deal with CBA and Aussie, GE Money noted they would waive the $3,084 Deferred Administration Fee (DAF) for existing customers who refinanced with Aussie by February 2010.  Existing mortgage holders would still be required to pay a second Lenders mortgage Insurance (LMI) plus the additional costs towards refinancing.  It has been argued that GE Money's recent actions are nothing more than an attempt to retrieve as much money as possible before finalizing their exit from the mortgage market, whilst 'pushing' customers to refinance with Aussie.

The Consumer Credit Code Section 72 states that: the court may review unconscionable interest and other charges.

(1) The Court may, if satisfied on the application of a debtor or guarantor that;

(a) a change in the annual percentage rate or rates under a credit contract to which section 59(1) or (4) applies; or
(b) an establishment fee or charge; or
(c) a fee or charge payable on early termination of a credit contract; or
(d) a fee or charge for a prepayment of an amount under a credit contract;   

is unconscionable, annul or reduce the change or fee or charge and may make ancillary or consequential orders.

(2) For the purposes of this section, a change to the annual percentage rate or rates is unconscionable if and only if it appears to the Court that; 

(a) it changes the annual percentage rate or rates in a manner that is unreasonable, having regard to any advertised rate or other representations made by the credit provider before or at the time the contract was entered into, the period of time since the contract was entered into and any other consideration the Court thinks relevant; or

(b) the change is a measure that discriminates unjustifiably against the debtor when the debtor is compared to other debtors of the credit provider under similar contracts.

(1)        WIZARD/GE MONEY AND 'UNCONSIONABLE' INTEREST RATES

Wizard launched into the mortgage market in 1996 with the aim to 'take on the big banks'by offering competitive lower rates (Mortgage Buddy, 2009). Years following they won 'Mortgage Manager of the year by the Mortgage Industry Association of Australia' from 2004 to 2007 as well as the 'Cheapest Home Loan by Money Magazine for the last six years' (Mortgage Company 2009).

Wizard attributed their success to 'continuous dedication to providing the best home loans to their valued customers' and was noted as being 'the provider of credit services in 42 countries with assets of $130 billion' (Mortgage Buddy, 2009).  It was with this knowledge that many customers confidently chose the Wizard home loan products over their competitors.  When Wizard announced their exit of the mortgage market in February 2009, however, it was almost simultaneous that GE Money announced they wouldn't be passing on the RBA's 1% rate cut to remaining mortgage holders.

Consequently, Ge Money's latest interest rate and dating back to Feb 09 supports Section 72 1(a) and (2a) of the Consumer Credit Code as 'unconscionable'; (a) in comparison to Wizard's 11 year history of having lower home loan rates over the banks, and (b) since the latest interest rate contradicts advertised representations made about Wizard's product promise before and at the time the agreement was entered into.   For example, in Feb 09 Wizard's variable rate was noted at 6.26% and other banks approx 5.26%.  On an average $300K Wizard home loan, customers have been paying an additional of $388.06 per month from Feb to Oct 09 compared to other debtors with creditors in similar circumstances.  This has equated to customers paying a total of $3, 104.48 over the past eight months, which has left them disadvantaged compared to the debtors assigned with banks.

In October 2009, the RBA increased interest rates by .5%.  Interestingly, GE Money decided to pass this increase onto existing mortgage holders. This means that mortgage holders are still paying up to and over 1% more on their home loan repayments compared to the banks and other debtors in similar circumstances. As recently as Dec 09, GE Money increased rates again by 0.4%, which was well above the RBA's suggested .25%.   Once again, GE Money remain higher than the banks with the standard variable rate being 7.06%!  Its highly unjust and should not be allowed to continue.     

Considering the above, existing GE Money mortgage holders should be entitled to a refund or some kind of financial relief for the additional monies paid on their home loans since February 2009, and as long as the interest rates remain higher than the banks.  GE Money could have seen to be acting more 'justly' had they not passed on the RBA's .5% interest cut in October and December, to be more in line with or matching the banks.    

As recently as August 2008, Mark Bouris (former spokesperson for Wizard) was quoted criticizing the banks for not passing on the rate cuts by RBA. He said 'The banks' motive for stalling is clear: Wizard estimates that every week the big banks hold out on a 0.25 per cent cut, they earn an extra $30 million in interest' (The Sunday Telegraph).  It seems ironic now that GE Money/Wizard is doing the same thing which can only support current interest rates as unreasonable and opportunistic.

(2)        GE MONEY/WIZARD'S 'UNCONSCIONABLE OTHER CHARGES'

GE Money made it clear in February 2009 that they were exiting the mortgage market and hoping that existing mortgage holders would refinance with Aussie.  In order to 'push' lenders in Aussie's direction, GE Money has offered to waive the $3K DAF for customers if they refinance with Aussie by Feb 2010.  Customers will still be required to pay a second Lenders Mortgage Insurance (LMI) approx $5K on a $250K loan along with the other fees associated with refinancing.  These fees consist of an application fee $600, settlement fee $150, transfer and register mortgage $184 $95 fee and solicitors fee to prepare mortgage discharge $350.

According to Wizard, the above charges will be required if the customer refinances because it will be the 'customer making the choice to break their loan contract with Wizard' . This is regardless of whether they refinance with Aussie or via another lender. 

We the undersigned wish to challenge that the 'other fees and charges' noted above are unreasonable/harsh and discriminatory in support of Section 72 Credit Consumer Code for the following reasons: -
           - GE Money made the decision to exit the mortgage market ;

           - It was GE Money's decision to change the loan product 'sold' to customers at the time the loan contract was entered, giving existing customers 'just cause' to transfer/switch to a lender who can provide the same/similar loan product upon entering the agreement, without penalty;

           - The $3,084 DAF discriminates against customers who don't refinance with Aussie by 2010; it should be waived altogether since Aussie is technically Wizard just rebranded; 
           - The $3,084 DAF fee discriminates against customers who don't refinance with Aussie lenders (*not all Aussie products will deem most suitable for each customer;'s circumstances/choices). It should be waived regardless of who the customer needs to refinance with;

           - Mortgage holders already paid an LMI and other charges upon entering the agreement, and haven't defaulted on their loans.  Therefore the requirement for a 'second' LMI should be annuled and/or  transferred to the new lender along with the other fees and charges required for refinancing; 
           - If customers refinance, it won't be as if the customer has refinanced completely independent of any wrong doing or product change by the lender, or under circumstances whereby the customer and lender existed under 'fair and equal' conditions before making the move to switch lenders. 
             - GE Money has no incentive to treat customers fairly as they want to exit the mortgage market as soon as possible.  If GE Money was being 'justly' they would have waived all the fees and charges for customers to refinance since they are no longer 'honoring' their product promise to customers.   

It's also ironic that Mark Bouris was noted as saying in 2008 (when GE Money were already in negotiations with Aussie and CBA) that Wizard 'are the last non-bank lender standing and the banks cannot just keep widening their profit margins and charging what they like while Wizard is on the scene, offering honest, good value mortgages' (The Sunday Telegraph, August 2008). As is stands, Wizard/GE Money customers are still on the scene but certainly not receiving 'honest, good value mortgages''.

We thank you for your time to review this case and hope for a successful outcome for GE Money mortgage holders.