Mortgage exit fee ban could backfire

The federal government's vow to ban mortgage exit fees on new home loans could
unintentionally hurt smaller lenders, a leading economist and the banking sector's
peak industry body warns.
In a bid to introduce greater competition in the banking industry, Treasurer Wayne
Swan on Sunday pledged to ban exit fees, which can run into thousands of dollars,
from July 1 next year.
AMP Capital Investors head of investment strategy and chief economist Shane Oliver
said some smaller banks or non-bank lenders charged high exit fees but much lower
mortgage rates in order to "lock in a client".
"If exit fees are banned for mortgages, it could actually force up mortgage rates
for some of these non-bank providers," Mr Oliver said.
"It could have a counter-productive effect."
The Australian Bankers' Association (ABA) also said the exit fee ban, while
politically popular, risked being counterproductive.
"Exit fees reflect legitimate costs of mortgages and banning them will hurt smaller
lenders," ABA chief executive Steven Munchenberg said.
Mortgage and Finance Association of Australia chief executive Phil Naylor warned
that exit fees may be replaced by establishment fees, making it harder for consumers
to get a home loan.
The ABA also said that government intervention on ATM fees could hurt smaller banks
and make it even more expensive to deliver ATM services to rural and regional
communities.
It also expressed concern about the government's plan to potentially introduce
portable bank account numbers, in much the same way a mobile telephone number can be
"ported" to another telco.
"Account portability, if not properly considered and implemented, could also have
major cost implications for smaller lenders, hurting their competitiveness," Mr
Munchenberg said.
The ABA also responded negatively to the Australian Competition and Consumer
Commission being given the power to prosecute bank executives signalling to
competitors, through the media, that they would follow their competitors if they
lifted their lending rates.
"The industry rejects unfounded claims that there is any price signalling in banking
and is concerned that price signalling laws will make it more difficult for banks to
explain to their customers what may happen with the direction of interest rates on
mortgages and savings," Mr Munchenberg said.
Abacus Australian Mutuals, the industry body for credit unions, mutual building
societies and friendly societies, said there were several positives in the federal
government's banking reform package.
An important measure was a new "government protected deposit" seal to explain more
clearly the safe and secure standing of credit unions and building societies, Abacus
said.
Abacus chief executive Louise Petschler said the seal would improve understanding
among consumers that such entities met the same strict standards and Australian
Prudential Regulatory Authority rules as the big banks.
Ms Petschler said Abacus welcomed the government's decision to make its financial
claims scheme - a free guarantee on deposits of up to $1 million - a permanent
feature of Australia's financial system.
However the government needed to work more with industry on the vital matter of
wholesale funding costs.
Abacus also said areas needing further work included taxation incentives for
deposits and allowing mutuals to use franking credits.
Western Australia's Small Enterprise Network, which represents more than 3,000 small
businesses across the state, said it was disappointing that none of the reform
measures were targeted specifically at supporting business borrowing.