Stream One: Empower consumers to get a better deal
Ban exit fees for new home loans
The Gillard Government will ban exit fees outright for new home loans from 1 July 2011, and has carefully and methodically designed changes to the National Credit Code to build on our existing mortgage exit fee reforms.
If any bank seeks to simply re-badge their current mortgage exit fees as upfront entry fees — or recover exit fees through any other type of fee — the Australian Securities and Investments Commission (ASIC) has the power to pursue the bank if it appears that the fee is 'unconscionable' under the Government's new National Credit Code, which applies to both existing and new mortgages.
Several big banks have already responded directly to the Government's existing measures by removing their mortgage exit fees, and the Government will now legislate to ensure that these fees cannot be reintroduced, and that exit fees from other lenders are banned.
The Gillard Government has been concerned for some time that some banks are using mortgage exit fees to lock customers into their home loans. Exit fees (often called early termination fees) can be so high that they completely wipe out the savings from switching to a cheaper mortgage with another lender.
That's why on 1 July 2010, the Government introduced tough new reforms through the Australian Consumer Law to strengthen the hand of Australia's credit regulator, ASIC, to pursue banks over unfair mortgage exit fees.
These reforms ensure that ASIC has the power to take action against any bank if they charge an early exit fee which is considered unfair or unconscionable to a consumer.
ASIC has already released new rules which explain exactly how it will enforce the Government's existing ban on unfair or unconscionable exit fees, with the outright ban for exit fees on new loans coming in on 1 July 2011.
The banks are on notice that ASIC will take them to court if they try to profit from exit fees or use them to lock their customers in before the outright ban comes in next year.
These significant measures will boost competition in the home loan market over time, by giving customers greater freedom to walk down the road and get a better deal if their current bank isn't offering the most competitive interest rate.
The Government will introduce amendments to the National Credit Code to ban exit fees into the Parliament during the first sitting of 2011, following targeted consultation.