Two individuals from an emerging migrant community in Blacktown are locked into a long and bitter personal dispute.

In and out of the Court system for the last five years, they are unable to find closure and move towards a stable and peaceful family life. Voluntary support groups are giving up, exhausting resources at their disposal as well as losing genuine goodwill. As these protagonists are in the twenty’s and social security dependents, it will not be long when each or both of them fall into the crack of permanent social abyss. At what cost to the community from the time they came to Australia as refugees?

And where lies the fault?

The Liberal Coalition’s move to increase spending on mental health finally passed in the hung federal parliament. Mental sickness is something ordinary citizen sets aside and aggravates because of community neglect. Until there is a close encounter by way of family or close friend, we tend not to talk about it and hope someone else will take up the cause of mental health. Our supposed best thinking representatives in Parliament are divided on how to tackle this problem and Labor continues to fail the community by saying that the government does not have to act on this new legislation.

I suggest that this case in point can be multiplied many times over and is an early indication of mental issue.

Without intervention of counseling and strategies to detect and remedy the early signs of mental illness, the community will bear even greater financial and social costs.

Unreasonable Banking Practices

Joe Hockey, the Shadow Treasurer, emerged the more credible on his call for a bank enquiry on interest rate. I noted earlier that his call should be heeded and most of his expanded nine-point plan is now generally supported in Parliament. The exposure of very often unreasonable “exit” fee and high cost in refinancing a home loan showed how hollow Prime Minister Gillard’s simplistic solution of “voting with your feet”.

The so-called “exit” fee morphed out from the “early payout” ranging from one to three months interest on the loan balance. Most banks now have complicated formula on how to calculate “exit” fee that can amount to thousands of dollars and not the $700.00 to $800.00 being floated around.

I pointed out the unfair practice of treating credit on a Visa or Mastercard as unsecured may be inaccurate if the credit provider holds a security on the borrower’s property because of the “offset” provision in the loan agreement and the “tucked in” mortgage principle. One pays from 12% to 18% interest on unsecured credit, whereas the secured loan only bears 5% to 7% interest.

There are other banking practices that aggravate consumers who are already in financial strain because of increasing interest rate including the following:

* The default interest rate, the service or maintenance fee and interest on late payment are three different fees levied by banks. The default rate is a penalty, but because penalty is illegal, the mortgage document circumvents this by providing an interest rate called the “higher” rate, but if the borrower pays on time, the “lower” rate interest applies. The “higher” rate is represented as the real interest rate, but in effect it is a default fee or a penalty.

* The service or maintenance fee is charged by the banks during the term of the loan. The fee is noted in specific amount and payable in installment added to the repayments. In these days when repayments are by automatic deductions, there is virtually no service provided by the bank and is an unreasonable impost on customers.

* In practice, it is difficult to obtain a total payout from the bank when refinancing or paying out a loan. One is provided in the last minute with an exact payout after adding the charges, exit fee, penalty rates and service charges.

* Mortgage insurance premium is an added burden to the consumers. When the bank lends more than 80% of the value of the security, it demands mortgage insurance. This type of insurance is for the bank’s benefit, when there is foreclosure or repossession, and the proceeds of the security is insufficient to payout the bank loan. The shortfall can then be recovered from the insurer. The premium can amount to thousands of dollars added to the loan. If this is to protect the bank and the bank assumes no risk why should the premium be paid by the borrower? Why are banks allowed to aggressively advertise borrowing to the full value of the security? In many cases, the insurance company providing the mortgage insurance is a division or related company of the lending bank.

No wonder banks are raking billions of dollars in profit and senior management and CEO’s are on record salary package.

Bring on the bank enquiry and open competition!

Adding to the woes of consumers are the unethical and at times fraudulent practices of mortgage brokers.

Most brokers are honest, highly trained and ethical in looking after the best interest of their clients. However, there are aggressive ones who only eye on the commission and would even go far as to commit fraud in documentation to have the loan approved without regard to the capacity of borrower to repay.

When the broker has some form of referral arrangements (often undisclosed) with a real estate agent, you have the making of a financial disaster for the consumer. We know that many have been victims of this unscrupulous practice.

The “red light” should be “on” when the broker nominates the solicitor or going so far as to represent that the consumer cannot choose his own lawyer.

*** Lawyer Jess Diaz is a councillor of Blacktown City Council. More about Jess Diaz…

Other post/s by Jess Diaz

• Year End Political Perspective - January 1st, 2012
• Provocative: Why Rizal Today? - December 30th, 2011
• A bat to king hit the NSW State Labor! - January 22nd, 2011
• Asylum seekers' dreams ended on Australian shores - January 21st, 2011
• On risks, plagiarism and interest rates - November 1st, 2010