Ban on Mortgage Exit Fees: Submission to the Treasury

Consumer Credit Legal Centre has contributed to the Post Implementation Review of the ban on mortgage exit fees. We continue to support the ban on exit fees as introduced through the National Consumer Credit Protection Amendment Regulations 2011 (No 2). The fees that these regulations prohibit are anti-competitive. Key points in our submission:

• CCLC is of the view that termination fees, whether they be fees for early termination or deferred establishment has the effect of: Misleading consumers as to the cost of a loan; and Trapping borrowers in unsuitable loan products.
• Consumers often reported being trapped in high interest loans, because they could not borrow enough to cover the exit fee upon refinancing. This left some borrowers in the position where they had to sell their homes even though they could have afforded a more competitive loan with lower repayments.
• We contend that the bill has not had the anti-competitive effect that was forecasted by lenders.  The bill has been effective in enabling competition in the mortgage market whilst in turn enabling open, fair and transparent terms and conditions for borrowers in making choices and comparing products in the market place.  In our view, the ban has effectively removed one route for a lender to gouge a borrower without substantially affecting competition to the detriment of consumers. Rather, competition has become more transparent as consumers are able to more easily compare products and their associated costs. We also observe that a number of lenders advertise that there is a ban on mortgage exit fees to encourage shopping around for a better deal.