Exit Fee Ban

The Federal Government has the amended the National Credit Code (NCCP) Act to ban home loan exit fees, it became law on 23 March 2011 and will be in effect for all new loans written from 1 July.
The final regulation differs slightly from the draft regulation, but generally has the same effect.
The new regulation prohibits ‘credit fees and charges’ on early termination and applies to loans secured by residential property so the regulation covers investment properties as well.
The only allowable termination fees that can be charged from 1 July are break fees under fixed rate loans, discharge fees or fees payable before any credit is advanced.
ASCI will now start the process of reviewing applications from lenders for exemption. This is likely to be a long process with the fee affecting all lenders. For example the fee would ban exist fees on specialist products such as the equity finance loan (where the equity finance lender charges up to 40% of the upside sales prices of the property on termination of the loan). This fee is of course key to the EFM and without it the product will simply on work.
The new ban has no impact on existing loan contacts so will only impact new lending.
Already the broking industry has begun evaluating how it will operate under these new regulations. It is likely that fee for service or new products with upfront fees will be introduced along with upfront clawbacks.
While the regulations may reduce competition initially it is being viewed as a win for consumers. The majority of the major banks have already removed exit fees on bank originated loans to cash in on the goodwill being generated with the public.