Skip to content
CMA Australia Logo
  • Home
  • About Us
    • Background
    • Rules and Policies
      • Rules
      • Business Continuity Policy
      • Privacy Policy
      • Risk Management Policy
      • Freedom of Information Policy
      • PCID Security Standard Compliance Policy
    • Recognition
    • ICMA Council & Executive
    • Committees & Boards
      • Education Advisory Board
      • Education Committee
        • Academic Education Sub-Committee
        • Continuing Education Sub-Committee
        • Professional Education Sub-Committee
      • Membership Advisory Board
      • Membership Committee
        • Membership Services Sub-Committee
        • Industry and Government Engagement Sub-Committee
        • Ethics Sub-Committee
      • Finance, Audit & Risk Advisory Board
      • Finance Committee
    • Regional Offices
    • Strategic Alliances
    • Facilities
    • CMA Australia Logos
    • Contact Us
  • Membership
    • Overview
    • Membership Grades
    • Digital Credentials & Badges
    • Experience Requirements
    • Member Benefits
    • Application
    • Post Nominals
    • Registry
    • Ethics
      • Ethics Rulings
    • Membership Pathways and Fees
      • Academic Pathway
      • MBA Degree Holders
      • University Graduates
      • Diploma and Adv Diploma
      • Members of Professional Bodies
      • Emerging Professional Scholarship Program
      • School Leavers
    • Membership Rules
    • Refund Policy
  • Education
    • Professional Level Programmes
    • CMA Program
      • CMA Program via Zoom
      • CMA Syllabus
      • Testimonials
      • Competency Framework
      • Pointers on Exam/Assignments
      • Practice Papers
    • CGBA Program
    • Graduate Program
    • GMA Conversion Program
    • Technician Level Programmes
      • CAT Program
      • RCA Program
      • RBA Program
    • Entry Requirements
    • Credits and RPL
    • Course Timing
    • Policies
      • Access and Equity Policy
      • Student Support Policy
      • Online Learning Policy
      • Assessment Policy
      • Results Policy
      • Student Grievance
      • Student Misconduct Policy
      • Refund Policy
    • CIPA Program
  • Publications
    • Management Accounting Frontiers (MAF)
      • MAF Call for Papers
      • MAF Guide for Authors
      • MAF Editorial Board
      • MAF Journals
    • On Target Magazine
    • JAMAR
    • Media Releases
  • CPD Activities
    • CPD Programs
      • CPD Regulations
      • Online CPDs
      • Online CPD Registration
      • Accredited CPD Providers
    • Networking
    • Career Development
    • Corporate Learning Solutions
    • Mentoring
    • In-House Training
    • Upcoming Events
  • Providers
    • WITS Global Business School
    • Accredited Providers
    • Accredited Universities
  • FAQ

The Biggest Rort in Mortgage Interest Calculations Goes Undetected by The Royal Commission

You Are Currently Here:Home > Media Releases > The Biggest Rort in Mortgage Interest Calculations Goes Undetected by The Royal Commission
Professor Janek Ratnatunga, CEO of the Institute of Certified Management Accountants (ICMA), has commented that whilst the recently released interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry highlighted many practices of “greed” in the pursuit of short-term profit – the biggest fraudulent or dishonest act or practice of how banks calculate mortgage interest appears to have gone undetected.

The report said that, as the products and services offered by the banks and other financial institutions proliferated, “selling” became their focus of attention – too often, becoming the sole focus of attention. Further “compliance” appeared to have been relegated to a cost of doing business; i.e. pay the small fine if caught!

However, whilst there were many examples of behaviour falling below community standards and expectations such as banks pursuing of profits rather in looking after the interests of their customers in approving loans, giving biased financial advice; charging ‘fees for no service’ and fees dead people, and selling dodgy low value funeral insurance to Indigenous customers, Professor Ratnatunga is of the view that this is only the tip of a very big iceberg.

“The biggest rort that appears to have gone undetected is the way banks use basic finance annuity equations to calculate monthly mortgage principal and interest repayments and the interest on deposits into offset accounts. The finance equations used to calculate the mortgage interest by banks are either erroneous, or are skewed to provide answers always in the bank’s favour at the expense of their customers”, he says.

Professor Ratnatunga has collected many examples where a mortgagee’s monthly interest and principal repayment stated in his or her bank mortgage statement was different to that obtained by using that bank’s own loan calculator (available on the internet). In one case, the difference was $14.49 per month over 30 years. This amounted to a present value of $2,493.45 (in the bank’s favour) which is a substantial amount of money. In another case, the mortgagee elected to repay the interest and principal fortnightly. The bank simply halved the monthly rate and told the customer to pay this fortnightly. When this calculation error was pointed out to the bank in question by Professor Ratnatunga, i.e. as the principal is being repaid at a faster rate, just halving the monthly rate is incorrect, the bank in question admitted that that it had changed the method of calculation only in February of this year.

Professor Ratnatunga supposes that this was probably due to the pressure being applied to banks by the Royal Commission.

“Even if the banks use the correct equations, how they apply these equations when interest rates change is always in the bank’s favour. When interest rates go up, the change in mortgage interest payable is applied immediately; but when interest rates go down, these are only applied from the beginning of the next monthly cycle date of the loan”, says Professor Ratnatunga.

Professor Ratnatunga says such practices have been going on for at least the last 30-years, netting all banks many billions of dollars cumulatively. This is the real tip of the iceberg.

The banks hide these sorts of rorts with incomprehensible mortgage loan statements that lack any semblance of transparency. These statements are extremely difficult for even a finance specialist to comprehend. In addition, a number of unexplained “interest corrections” or similar amounts appear constantly in the statements without any explanation. Each correction is of a small amount – but such corrections spread over all loan accounts at the bank could amount to many millions of dollars.

The Royal Commission’s interim report does allude to bank statements lacking transparency in charging overdraft and dishonour fees, which while small, can add up to significant amounts over time. The report also said that Indigenous customers in remote communities faced problems with access to basic accounts, informal overdrafts, dishonour fees and identification issues.

Professor Ratnatunga says, “Let alone Indigenous customers in remote communities, that even professors of finance in big cities will find it difficult to analyse these opaque statements”.

Professor Ratnatunga urges the Royal Commission to undertake a forensic audit of the Mortgage Interest calculations of a sample of Mortgage Loans, covering all banks.

“The ideal time to do such an audit is when the Bank is asked to provide a final discharge amount on the termination of a loan. If given access to bank records, a simple calculation by a finance expert will indicate if the discharge amount is correct, or if its substantially in the bank’s favour.”, he says.

 

For further comment on the above topic, please contact:

Prof Janek Ratnatunga

CEO, ICMA Australia

Mobile: +61432758380

Email:janek.ratnatunga@cmaaustralia.edu.au

About the Author 

 

Professor Janek Ratnatunga is the CEO of Institute of Certified Management Accountants. He has held senior appointments at the University of South Australia, Monash University, University of Melbourne, and the Australian National University in Australia; and the Universities of Washington, Richmond and Rhode Island in the USA. Prior to his academic career he worked as a chartered accountant with KPMG. He has also been a consultant to many large Australian and international companies and to the World Bank.

Related Posts

Premier Management Accounting Bodies In Thailand (TFAC) And Australia (CMA ANZ) Sign Collaboration Agreement
Premier Management Accounting Bodies In Thailand (TFAC) And Australia (CMA ANZ) Sign Collaboration Agreement
Gallery

Premier Management Accounting Bodies In Thailand (TFAC) And Australia (CMA ANZ) Sign Collaboration Agreement

December 7th, 2022
Rod Sims, Don Rankin and Simon Griffiths inducted into the ICMA Global Accounting and Management Accounting Hall of Fame.
Rod Sims, Don Rankin and Simon Griffiths inducted into the ICMA Global Accounting and Management Accounting Hall of Fame.
Gallery

Rod Sims, Don Rankin and Simon Griffiths inducted into the ICMA Global Accounting and Management Accounting Hall of Fame.

November 14th, 2022
Skills Australia removing accountants from the shortage list has some overall merit! But the reasons are complex says Management Accountant’s CEO

Skills Australia removing accountants from the shortage list has some overall merit! But the reasons are complex says Management Accountant’s CEO

October 10th, 2022
Enrol for the CMA Program
Explore our Education Programs
Register for CPD Programs

RSS Recorded Webinars

  • Travails of an Investigative Journalist
  • Prof Rodney Sims inducted to the Global Management Accounting Hall of Fame for his services to the profession and the community in Australia
  • Mr. Don Rankin inducted to the Global Accounting Hall of Fame for his services to the profession in Australia
  • Mr. Simon Griffiths inducted to Social Purpose Innovator Hall of Fame for his impact on social entrepreneurship and sustainability
  • Ajay Unni – How to derive ROI from your cybersecurity spent

CMA News and Updates

RSS CEO Blog

  • Business Forecasting: Prediction or Speculation?
  • ‘Quiet Quitting’: The Silent Challenge of Performance Management
  • Optus Data Hack: The Dark Side of Invading Social Media Privacy
  • Escaping the ESG Reporting Maze – Prioritise on Emissions Only
  • The Social Purpose: New Holy-Grail of the Marketing – Finance Interface
  • Racial Stereotyping in Advertising: The Monetary vs. Societal Impact of Charity Fundraising
  • Back to the Future! Reversing the Plastic Pollution Pandemic

RSS Industry News

  • Banking reforms could make the UK a sustainable finance hub, but also threaten financial stability
  • Global risks become reality
  • Sustainability is driving profitability and competitiveness in Australia, though access to data is stifling progress
  • Australian CEOs see mild downturn before return to growth
  • Paying over the odds: Bailout ‘stigma’ and its role in saving the world economy
  • CFO Sentiment: New challenges emerge but optimism remains
  • CFOs Prioritize Digital Tech Investments in Finance Function

RSS Hall of Fame

  • Prof Rodney Sims inducted to the Global Management Accounting Hall of Fame for his services to the profession and the community in Australia
  • Mr. Don Rankin inducted to the Global Accounting Hall of Fame for his services to the profession in Australia
  • Mr. Simon Griffiths inducted to Social Purpose Innovator Hall of Fame for his impact on social entrepreneurship and sustainability
  • Rev Dr. Felix Raj inducted to the Global Management Accounting Hall of Fame
  • Dr Gerard Ee Hock Kim inducted to the Global Accounting Hall of Fame
  • Ms Adele Ferguson AM, Dr Samer Shahin and Mr Ron Pitcher AM inducted into the ICMA Global Accounting and Management Accounting Hall of Fame
  • Ms. Adele Ferguson AM inducted to the Global Management Accounting Hall of Fame

RSS CMA News

  • SINGAPORE: Global Hall of Fame Awards Dinner 2023
  • Indonesia Events and Activities
  • Reports Presented at AGM 2022
  • Frontiers of Accounting Symposium 2022
  • Sri Lanka Graduation Ceremony 2019-2022 of ICMA (Australia & New Zealand)
  • Indonesia Events and Activities
  • Premier Management Accounting Bodies In Thailand (TFAC) And Australia (CMA ANZ) Sign Collaboration Agreement

Privacy Policy | Contact Us | © Copyright | The Institute of Certified Management Accountants, Australia | All Rights Reserved 

Close Sliding Bar Area

Recent Posts

  • On Target January February 2023
  • JAMAR Summer 2022
  • On Target November December 2022

Stay In Touch

Contact Info

9876 West Green Street

Phone: 1-800-987-6543

Mobile: 1-800-345-6789

Email: info@your-domain.com

Web: Avada WP Theme

Page load link
Go to Top