Case note: no price fixing in mortgage broking

In Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2013] FCA 1206 the Federal Court of Australia dismissed an action by the ACCC alleging that Australian and New Zealand Banking Group Limited (ANZ) had breached the price fixing provisions of the Trade Practices Act 1974 (the Act), now the Competition and Consumer Act 2010 (CCA).

UPDATE 17 December 2013: ACCC to appeal

The ACCC alleged that in 2004 the ANZ Bank sought to limit the amount of a refund a mortgage broker, Mortgage Refunds Pty Ltd, could provide to its customers in respect of arranging ANZ home loans. Mortgage Refunds was an Approved Originator with Australian Financial Group Ltd (“AFG”) with which ANZ had an originator agreement.

At the time ANZ complained that Mortgage Refunds’ business model of refunding upfront commissions to borrowers (of up to $1200) breached the originator agreement which required that an Approved Originator must not “induce or cause to induce any party to apply for loan products by offering gifts or prizes or other inducements of whatever kind, without the prior written approval of the bank”. They agreed to limit refunds to $600 (the same as ANZ’s loan establishment fee which ANZ branches could waive).

Justice Dowsett rejected the ACCC’s submission that the ANZ’s conduct was motivated by a desire to prevent competition between its in-house and tied channels and the brokers.

After considering extensive evidence from broking industry experts and economists, the Court had to decide whether ANZ and Mortgage Refunds were competing in the same market: was supply of the loan product distinct from the supply of loan arrangement services? In other words were the 2 channels, brokers which advised borrowers on a range of loan products from various lenders, and branches, which sold only ANZ loans, in competition?

Justice Dowsett concluded “that ANZ branches and franchisees did not participate in any market in which the brokers provided loan arrangement services to potential borrowers. That finding leads to the conclusion that ANZ was not, in any relevant sense, in competition with Mortgage Refunds.”

He observed that:

“ANZ’s action left Mortgage Refunds with the capacity to offer a refund up to the amount of the loan approval fee charged by ANZ. The only difficulty which Mortgage Refunds seems to have had with the limit was the problem with its advertising. The different level of refund for ANZ products, as compared to that for the products of other lenders, led borrowers who chose ANZ products to press Mortgage Refunds for higher refunds. As far as the evidence goes, ANZ in-house and tied channels did not generally waive the loan approval fee, whilst Mortgage Refunds always allowed its refund. Thus, in most cases, it would still have been offering a distinct benefit which the in-house and tied channels were not offering. It may be that from the point of view of ANZ Mortgage Group, the advantage of its proposed solution lay in ANZ’s capacity to say to the in-house and tied channels that they could waive the loan approval fee at their expense, as it had suggested on at least one occasion, even if it suspected that they would not want to do so….

I should make one other point. ACCC’s submission assumes that channel neutrality is inevitably motivated by an anti-competitive purpose. Yet there is logic in the proposition that an up-stream supplier may simply wish to avoid damaging and pointless conflict between distribution channels. In taking action in response to Mortgage Refunds’ conduct, ANZ initially sought to enforce, as against AFG, the terms of the originator agreement. The subsequent “re-instatements” were, in fact, on more favourable terms than those contained in that agreement. ANZ approved the offering of a not-insubstantial refund which, as far as the evidence goes, the branches would not generally match. In order to demonstrate the existence of a competitive relationship by reference to conduct, one must show that a desire to hinder competition is a likely reason for such conduct. For what it is worth, I am simply unconvinced that ANZ’s conduct was so motivated. Having regard to the apparently isolated nature of the conduct and the limited nature of the restraint imposed, I am inclined to the view that ANZ was trying to keep the branches happy rather than seeking to restrain perceived competition. That view is, of course, based on all of the evidence in the case. “

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