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Jessica Darnbrough
The industry has praised the Senate Economics Committee’s exit fees recommendations.
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Last week, the Committee urged the federal government to conduct a proper assessment of the November 2010 ASIC Guidelines on exit fees before banning them.
Alternatively, the Committee asked that the government exclude smaller lenders from the proposed ban altogether.
MFAA chief executive Phil Naylor praised the recommendations, referring to them as the “first step towards ensuring that the most competitive players in the mortgage industry – small and non-bank lenders – are not wiped out”.
“The Committee heard the submissions and formed the view that banning exit fees would hurt small mortgage lenders,” Mr Naylor said.
Mortgage Choice’s chief executive officer Michael Russell agreed and said non-bank lenders are vital to the health of a competitive lender market.
Last year, Mr Russell lobbied the government to cease moving ahead with a home loan exit fee ban.
“A unilateral ban on exit fees will have the unintended consequence of actually reducing lender competition by damaging the competitive offering of non-bank lenders and some second tier banks. These lenders have up until now only been able to compete on price by deferring or back-ending certain establishment fees. If this option is removed, then by default they would need to increase their customer interest rates and/or ongoing fees. The major banks would then be sure to follow or perhaps wait until the non-banks suffocated,” Mr Russell wrote in a statement to Treasurer Wayne Swan in 2010.
“Mortgage Choice supports the guidance paper issued by ASIC (RG220) endorsing exit fees that represent a reasonable recoupment of costs upon the early termination of a loan. Smaller lenders would then be able to continue to compete on upfront interest rates and fees. As previously mentioned, and as you are aware, greater competition will deliver improved product innovation, pricing and service.
“Should the Gillard Government unilaterally ban exit fees, then it will unwittingly hand over on a plate the heads of the non-banks to the major banks. Why? They are reliant upon this fee to be able to remain competitive at the front end, where real competition counts for the consumer.”
