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The Treasury Department has requested industry comment on the banning of loan exit fees brought in under the previous government.
In a letter to the Mortgage and Finance Association of Australia (MFAA), the Treasury Department has sought comment on the impacts and unintended consequences of the ban.
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CEO of La Trobe Financial Greg O’Neill said the current ban on exit fees has enticed many lenders to implement a risk fee, or equalisation fee, which offers protection for the lender, while making the client pay for no returned benefit.
“Unlike lender's mortgage insurance (LMI) offered by independent third party providers such as Genworth or QBE, these specialist lender risk fees offer no consumer benefit or protection level at all for the borrower,” he said.
“LMI at least provides a bona fide independent contract of loss insurance for the lender, which in turn benefits the borrower from recovery actions of lenders to some extent. A risk fee charged by specialist lenders is merely pocketed as profit,” he added.
“This is why La Trobe Financial does not charge borrower clients a risk fee because unlike independent LMI, there is no tangible consumer benefit whatsoever in paying such risk fees levied,” said Mr O’Neill.
Mr O’Neill said consumers would be better served by lifting the complete ban on risk fees, as recommended by the Senate Economics Committee back in 2011.
