Friend or foe?

President of the Finance Brokers Association of Australia, Peter White believes that the ban was inevitable.

“The debate won brownie points with consumers, so the government was never going to do a back flip on its policy,” Mr White says.

While the law’s introduction failed to surprise industry pundits, it did manage to spark anger across the mortgage sector.

Aussie’s executive chairman John Symond launched a stinging attack on Swan, labelling the Treasurer “arrogant” and “incompetent” over his refusal to listen to the industry’s views of the proposed ban.

“We have an arrogant Treasurer who refuses to enter into dialogue,” he said.

According to Mr Symond, the exit fee ban will not only hurt borrowers by pushing up the price they pay for mortgages, it will also have a negative impact on the competitiveness of Australia’s non-bank sector.

But is this really the case?

A THREAT TO COMPETITION?

According to Resi’s chief executive officer, Lisa Montgomery, the measures won’t stifle competition between Australia’s lenders?

The non-bank sector has already proven itself to be incredibly resilient and will not struggle to cope once the exit ban is enforced in July, Ms Montgomery says.

“The government’s exit fee ban is just another obstacle that the non-bank sector has to face and overcome,” she says. “It is not anywhere near as dramatic as some people make out.

“There seems to be a common thought in the industry that the non-bank sector has to rush out and put all its ducks in a row.

“This is simply not the case. We still have plenty of time to survey our options, be innovative and tweak our pricing and policy structure to suit the legislation.”

If non banks can survive the GFC, then the sector will have no problems overcoming this latest obstacle: “This is but a road bump for the sector,” Ms Montgomery says. “It is nothing to worry about.”

Steve Sampson, Provident Capital’s head of distribution, lending not only agrees but goes on to say the exit fee ban will actually level the playing field.

“Non-bank lenders will learn to be more creative in their products, pricing and fees,” he says, and according to Mr Sampson, non-bank lenders should have no problems doing so.

“Non banks traditionally offer a faster, better and more supportive service to brokers,” he says. “This strength will not be lost and will continue to be a major reason why smart brokers have a mix of bank and non-bank funders on their lending panel.”

Nevertheless, Mr Sampson also warns it would be “unwise” to think the new law will have no impact whatsoever on the non-bank lending sector.

“The exit fee ban will negatively impact some of the advantages the non-bank sector currently has in the marketplace,” he says. “Under the new legislation, non banks may be forced to start clawing back commissions from brokers, just like the banks do.”

COMMISSION UNDER FIRE

For a long time, the non-bank sector has tended to pay higher commissions to brokers.

But without the ‘protection’ of a deferred establishment fee, the upfront commissions non-banks currently pay to brokers may need to be reviewed.

Janelle Rayner, executive director of Barnes Home Loans, says under the new legislation, clawbacks will be inevitable.

Barnes has never had a clawback, she says, and she is concerned about the implications of the ban.

“Some of our brokers may not have sufficient trails to support clawbacks,” Ms Rayner explains. “We have seen our broker panel restricted due to NCCP, and I believe the exit fee ban will regrettably further reduce our business opportunities.”

Ms Rayner believes product choice may also be reduced. “We have done an analysis across our niche product range. Low docs in particular tend to refinance in the second or third year, which means higher establishment fees may eventually be introduced for these types of loans,” she says.

Should this happen, niche customers may be pushed out of the market altogether.

“At present, we lend to smaller developers who tend to refinance or pay out their loans in the first couple of years,” Ms Rayner says. “They know the costs going in, but the advantages of paying a loan out early far outweigh the DEFs. When the ban on exit fees is officially introduced, we may no longer be able to assist our niche borrowers.”

Ms Rayner says she is currently working with the company’s funders to work out a strategy that will benefit Barnes, as well as the company’s brokers and customers.

Provident Capital is another non-bank lender that is currently weighing its options, says Mr Sampson.

“There are ways we can adjust to the legislation and to the market, but in the end someone has to pay and that someone is not going to be the consumer,” he says.

TAKING THE LEAD

National Finance Club (NFC) has taken a slightly different approach, pre-empting the July deadline for the exit fee ban by abolishing its deferred establishment fees.

To adhere to the new legislation, the mortgage manager was forced to overhaul its loan offering. As a result, NFC has not only waived its exit fees but also changed its rates and the way its fees are structured.

NFC general manager Andrew Clouston says the changes are a bid to stay one step ahead of the company’s competitors by taking an active rather than a reactive stance.

“The recent ‘bank wars’ have put pressure on all other financial institutions to follow suit and reduce the cost of borrowing for customers,” Mr Clouston says.

“While the banks are battling each other, non banks also need to lift their game to keep their slice of the market pie.

“Along with more competitive interest rates starting at 6.99 per cent, no upfront fees for the client and now no exit fees, NFC is consolidating its position.”

So, is the non-bank jury still out on the impact of the exit fee ban on the sector as a whole? The coming months should provide an answer.