Puzzle Finance Blog


Victory on exit


Home buyers are receiving refunds for excessive home-loan penalties, writes John Collett

Early exit fees have been banned on home loans taken out from July 1 last year, but property buyers who took out loans before then with early exit fees might not have to pay the fees after all.

In a review of 20 lenders, the Australian Securities and Investments Commission (ASIC) found that they charged an early termination fee on 75,000 occasions between July 1, 2010, and February 15, 2011.

Although fewer than one in 100 consumers who were charged an early termination fee made a complaint, more than half of those who did complain ultimately had this fee waived or reduced.

The regulator has been making lenders better aware of the factors that increase the likelihood of an early termination fee being declared unconscionable.

Many lenders are likely to have changed their early exit fees to make them reflect the true costs they have incurred. But many consumers are likely to have paid or are liable to pay exit fees that are unfair.

Exit fees apply when a loan is terminated within the first three to five years, though the periods when exit fees apply could be longer, the regulator says.

Early termination fees go by a variety of names, including deferred establishment fees, early repayment fees, deferred administration fees and deferred settlement fees.

Indeed, early exit fees are different from the standard discharge fees charged on the termination of a loan and break fees that are charged on the early termination of fixed-rate residential loans.

Even though variable interest-rate mortgages entered into before July 1 last year are not covered by the banning of exit fees, these fees are still subject to the National Credit Code that came into force on July 1, 2010.

Grounds for having fees waived or reduced include when they do not reduce over time, are calculated by reference to the loan amount, and do not account for lenders' recovery of commissions paid to mortgage brokers when a loan is terminated early.

The regulator found 13 lenders had early termination fees that did not reduce during the period the fee was payable. This increases the likelihood of lenders recovering more than their actual losses arising from the early exit. Fifteen lenders had early termination fees that were calculated by reference to the loan amount, which also increased the chances of having the fees declared unconscionable. That is because the regulator says losses to lenders from early termination are fixed and do not increase relative to the size of the loan. A fee that is proportionate to the loan size is more likely to exceed the losses that the lender is entitled to recover.

As a result of complaints to the regulator, in July RHG Mortgage Corporation, formerly known as RAMS Mortgage Corporation, agreed with ASIC to refund more than $3.3 million in early termination and discharge fees on loans terminated since July 1, 2010, when the National Credit Code and ASIC's powers took action and the code began.

More than 6400 affected customers will receive refunds ranging from $50 to more than $10,000, with the most common refund being $400.

RHG also agreed to reduce its discharge fees on existing loans and to the staggered removal of early termination fees for thousands of customers. In early 2008, Westpac acquired mortgage lender RAMS and RHG has no association with RAMS or Westpac.

ASIC says borrowers who think they have paid an unconscionable or unfair fee should contact their lender in the first instance. If consumers are not satisfied with the outcome from their lender, they can make a complaint to an external dispute-resolution service of which the lender has to be a member.

Posted by John Collett - The Age on 26th September, 2012 | Comments | Trackbacks
Tags:

Bookmark and Share

The trackback URL for this page is http://www.puzzlefinance.com.au/trackback?post=26339937


Trackbacks

There are no trackbacks for this post


Comments

There are no comments for this post


Post a Comment

HTML is not allowed in comments, http://... will be automatically linked.


Name (required):


Email Address (not displayed):


Comment (required):


To help prevent spam, please enter the word arms here:

Puzzle Finance Blog

About Puzzle Finance


Archives

September 2017
August 2017
July 2017
June 2017
May 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010

Tags

Purchase or Rent (1)
The Age (1)