A coalition of consumer groups is urging Parliament’s cross-benchers to support the Government’s proposed ban on mortgage early exit fees, a ban which will improve competition amongst lenders and shine a light on the less visible costs associated with some home loans.
The coalition, made up of Victoria's Consumer Action Law Centre (Consumer Action), Consumer Credit Legal Centre NSW (CCLC) and CHOICE said the ban would make it easier for borrowers to switch between lenders if a better deal becomes available. This will boost competition and potentially save mortgage holders thousands of dollars.
Karen Cox of CCLC said they had recently run and lost a case in the Credit Ombudsman Service regarding an early exit fee (on a variable rate loan) of over $22,000 on a home loan of approximately $550,000.
“Sadly, in our experience, these larger fees are not uncommon for non-conforming non-bank lenders,” said Ms Cox.
Gerard Brody of Consumer Action said smaller lenders frequently offer lower head-line interest rates by shifting some of the cost of the loan into early exit fees.
“Shifting costs from the head-line interest rate into less visible charges like exit-fees doesn’t promote competition.
“This practice makes it harder for borrowers to compare the true cost of different home loans. Customers think they’re onto a good thing in the beginning, but if the loan becomes uncompetitive and they want to pick up a better deal from another lender, they're hit with massive fees.
“The argument that banning early exit fees will stymie competition is plainly false – exit fees don’t allow smaller lenders to offer cheaper home loans, it simply allows them to hide the real costs of the loan,” said Mr Brody.
Matt Levey of CHOICE said this was no time to retreat from genuine reform, after all, there are smaller lenders like some credit unions who already charge minimal exit fees and others who are making arrangements to accommodate the proposed changes.
“Business models that rely on trapping consumers in uncompetitive deals through complex and costly fees have no place in a reformed banking sector,” said Mr Levey.
Consumer Action: Gerard Brody, Director–Policy & Campaigns 0415 223 211
Consumer Credit Legal Centre: Karen Cox, Coordinator: 0409 835 134
CHOICE: Matt Levey, Head of Campaigns: 0488 214 066