Home loan early termination charge crackdown by ASIC
Home loan providers are being given further guidance on their responsibilities when it comes to exit fees.
Early termination fees have been banned on new loans since July 1st 2011, but the Australian Securities and Investments Commission (ASIC) is reminding lenders of their responsibilities to people who borrowed before the new legislation came into force.
Research by the regulator shows the outcomes of contested early exit fees tend to favour of borrowers.
Over half of consumers who made a complaint had their fee waived or reduced. However, the ASIC review also points out that fewer than one per cent of consumers charged with a fee actually complained.
Specifically, the ASIC is urging lenders to apply the latest regulations on early termination fees retrospectively.
"While early termination fees have been prohibited on new loans from July 1st 2011, it is important that lenders comply with the law for old loans on which such fees are still payable, said the regulator's commissioner, Peter Kell.
Of the 20 lenders reviewed in the ASIC Regulatory Guide 220 for early termination fees, around 75,000 loan charges were levied between July 1st 2010 and February 15th 2011.
However, there were around 1.5 million loans on which an early termination fee would have been payable.
This differential is linked to the number of fees that were declared "unconscionable".
ASIC identified several factors that could increase the likelihood of fees falling into this category. These include fees that do not reduce over time and those calculated based on the loan amount.
Borrowers facing early termination fees will no doubt be reassured by the news. They will be especially pleased with ASIC's plans to encourage lenders to review their early termination fees in light of these findings.
Reassuringly for the banking industry though, consumer satisfaction with services is on the rise. Recent research compiled by Roy Morgan Research in August found that three quarters of consumers were content with services provided by the Commonwealth Bank, ANZ, National Australia Bank and Westpac.