Treasury has released a discussion draft of a regulation to ban
exit fees.
Submissions can be made until 1 March 2011.
The proposal goes much further than just banning exit fees on
home loans payable on early repayment. Instead, it bans any
fee payable at the end of a loan contract other than fixed rate
break costs and discharge administration fees. It also
applies to residential investment loans.
The introduction of exit fees in 1996 saw increased competition,
reduced interest rates, product development, and increased access
to finance for Australian consumers. Those benefits have been
dramatically demonstrated by the resilience of the Australian
housing market and Australian mortgage backed bonds throughout the
GFC. This good work will be undone out of a misguided and ill
informed initiative designed to help consumers, but which will have
the opposite effect.
