Exit fee rules could hurt borrowers

Home loan borrowers could have potentially less choice in the mortgage market
following the release of new rules to crack down on costly exit fees.
It comes as the ANZ Bank hit customers on Wednesday with a lending rise 14 basis
points above the latest Reserve Bank rate increase.
The Australian Securities and Investments Commission (ASIC) has indicated it will
focus its efforts on the highest exit fees in the market.
But the big banks are the least likely to be affected by the corporate regulator's
crackdown, following ASIC chairman Tony D'Aloisio's challenge to lenders to justify
the true costs of ending loans early.
Smaller, non-bank lenders, who charge higher exit fees, are more likely to lose out,
potentially robbing home borrowers of choice.
One Victorian-based non-bank lender charges consumers $7300 to leave a loan within
the first three years while other small players ask upwards of $4000.
By comparison, the Commonwealth Bank charges a $700 exit fee, while Westpac and NAB
demand $900 for the right to switch to another lender.
ANZ on Wednesday joined St George in scrapping its mortgage exit fee.
But the announcement also coincided with news it would raise rates on its standard
variable home loans by 39 basis points, which is way above the Reserve Bank's
25-basis-point move.
Borrowers on an average $300,000 mortgage with ANZ will now be paying an extra $76 a
month in repayments, thanks to the bank's decision to join the Commonwealth Bank in
thumbing its nose at battlers.
Finance Minister Penny Wong said the move was unjustified.
But shadow treasurer Joe Hockey said the ANZ rate rise had made a mockery of the
federal government's warnings to banks.
"Just to kick sand into the eyes of (Prime Minister) Julia Gillard, the ANZ
increased their rates and then made it easier for people to leave the ANZ. They did
this because they know there just isn't enough competition in the Australian banking
system," he told reporters in Melbourne.
Mr Hockey said the ASIC rules were a disappointment to voters, who were promised a
silver bullet on exit fees.
The Australian Bankers' Association said the ASIC rules would force banks to review
all exit fees on new and existing mortgages.
"The ABA has always argued that mortgage exit fees are based on legitimate costs
incurred by banks and this has been recognised by ASIC," chief executive Steven
Munchenberg said in a statement.
Lenders would also be banned from increasing exit fees on standard variable loans
after a borrower had entered a contract, and they would be obliged to explain the
charges more clearly.
The rules clarify legislation enacted in July.