CBA's Aussie buy has Consumer Law risk

One of Australia's leading competition experts has warned that the CBA risks breaching the laws on misleading or deceptive conduct if it tries to turn broker Aussie Home Loans into a CBA sales channel.

Monash university economist Professor Stephen King told Banking Day that he believed it was likely CBA would eventually try to increase the volume of loans it generated from Aussie. King, a former commissioner at the Australian Competition and Consumer Commission, said CBA could expose itself to an ACCC action under section 18 of the Australian Consumer Law if it used Aussie to generate extra loans.

CBA took control of Aussie this week, subject to Australian Competition and Consumer Commission approval.

"From the CBA's perspective, they are going to have to think about how they deal with Aussie," King said. "If they start pushing people towards CBA loans which aren't necessarily the best product ... they may have problems with misleading or deceptive conduct."
 
But, King said, CBA would have economic incentives to push Aussie brokers into delivering more CBA loans. "At some stage, somebody's bonus is going to depend on pushing more product through the CBA channel," King predicted.

King also suggested that CBA could struggle to maintain the Aussie brand after "buying reputation" in the deal.

"When you are 80 per cent owned by one of [the major banks], it will certainly make the customers wonder whether they are getting the best product," he said. "Even if the CBA is able to put in all the Chinese walls to keep them independent, there's going to be a consumer perception that they are not independent."

The ACCC was unlikely to block the deal on competition grounds, King said, because of the ease of entry into the mortgage broking business.