The ABA was responding to a joint media release from the Deputy Prime Minister and Treasurer, Wayne Swan, and the Minister for Financial Services, Chris Bowen, issued today on mortgage exit fees.

The statement noted that ASIC today released guidance and will consult on how it proposes to implement the unfair terms section in the new Australian Consumer Law and the ‘unconscionable’ provisions of the new National Consumer Credit Protection Act.

Steven Münchenberg, Chief Executive of the ABA, said: “Australia has low entry fees for mortgages compared to countries like the US and UK.  That means it is cheaper to get a mortgage here than in other countries.  Banks achieve this by deferring some of the costs of establishing a mortgage and only charging those customers that change their mortgages in the first few years.”

“Early mortgage exit fees can include the bank’s unrecouped costs associated with the establishment of the loan. Exit fees may also include the credit provider’s average administrative costs and any loss to the credit provider arising from the early termination.”

“For example, a credit provider may agree not to charge the full loan establishment costs at the start of the loan on the basis that it may recoup those costs if the loan runs beyond a certain term.”

“Keeping up-front mortgage fees lower benefits all customers and supports customer switching. The effect of deferring these up-front fees, for example, legal service fees, is that it reduces the cost to the customer of setting up a new loan at a time when they are incurring many other costs. There’s plenty of evidence that people are switching mortgages – around 30 per cent of owner occupied home loans are refinanced each year.”

The ABA believes it is important that all lenders are involved in this consultation. Banks will be providing ASIC as much information as they need to demonstrate that mortgage early exit fees are appropriate and justifiable.

Mr Münchenberg said: “We would expect other lenders to be involved as well because the ASIC review of mortgage entry and exit fees¹ in 2008 showed that non-Authorised Deposit-taking Institutions (non-ADIs) typically charge higher fees than banks.”