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MFAA Prosper : Mortgage and Finance Brief 05
The Federal Government's announcement that it will empower Australia's corporate watchdog to crack down on unfair mortgage exit fees generated a string of dramatic headlines. "Exit fee wolves targeted" thundered one tabloid newspaper. The decision played to the popular perception that banks and other lenders are ripping off customers with excessive and unfair exit fees. The Government itself said the crackdown was necessary to stop banks using mortgage exit fees to lock customers into their home loans by restricting the incentive to switch lenders. Under the reforms, which came into effect on 1 July, the Australian Securities and Investments Commission (ASIC) has the power to take action against any bank if they charged an early exit fee that is "unfair or unconscionable" to a consumer. Consumers can also challenge exit fees they believe are unfair or unconscionable. But many banks and industry groups are warning ? A Federal Government crackdown on early exit fees for home loans could have the unintended consequence of reducing competition by smaller lenders. Words Ben Power that the changes could actually hurt customers by inflating upfront fees, raising interest rates and cutting competition in the home lending market. They argue it could also threaten the relevance of mortgage brokers. Before developing a specific framework on how it will regulate mortgage early exit fees, ASIC is now consulting stakeholders, including a call for submissions. But there are growing industry concerns surrounding the impact of the crackdown on deferred establishment fees (DEFs). Deferred establishment fees DEFs allow lenders to provide lower upfront fees and competitive interest rates to borrowers by deferring set-up costs. The deferred set-up costs are only paid if the borrower exits the loan early. In a submission to ASIC, the Mortgage and Finance Association of Australia (MFAA) argued that borrowers are appropriately protected against unconscionable interest or fees by existing laws, and Paypay MFAA CEO Phil Naylor says a crackdown on early exit fees could constrain competition in the mortgage market. Mortgage & Finance brief | 29 InDepth
Mortgage and Finance Brief 06